Indonesia Banks 1Q previews: credit momentum to drive top line, but a watchful eye on margins - JP Morgan

The four major banks under our coverage are expected to declare results on April 28-29. Given recent trends, we believe that volume growth should be healthy across the board – perhaps led by BCA (JPM estimate 1QFY11E credit growth of 30% y/y). However, looking at system data for February we believe that there may be the risk of margin compression during the quarter. We estimate NIMs compressed c40bps q/q at Danamon but were generally stable elsewhere in the sector – which could be a source
of downside risk, if proven incorrect.

• BBCA: We forecast BBCA to have reported net profits of Rp 2.4 trn in 1Q, up 25% y/y but flat q/q. Profits should have been driven by healthy PPOP growth (10% y/y) and continued benign credit costs. The risk to the stock comes from valuation, which at 4.7x FY11E PBV leave little, if any, room for disappointment.

• BBRI: We forecast BBRI to have earned net profits of Rp3.25 trn in 1QFY11. However, given indications by management of profits of about Rp 4trn, this forecast is exposed to substantial upside risk. If results demonstrate that BBRI is able to generate a healthy level of growth from a higher base, and operating metrics remain strong – we believe that results could open up significant upside to the stock from both revisions and re-rating. It remains our top pick in the sector.

• BDMN: We estimate that BDMN grew loans at 28% y/y in 1Q, and forecast a 40% growth in profits y/y to just under Rp 1trn. Our estimates build in a 40 bps q/q contraction in margins – which we believe is already discounted in the stock price. BDMN has been a laggard over the last couple of months, and healthy results may provide an impetus to the stock to close gaps with its peers.

• BMRI: We project 1QFY11E net profits of Rp2.5 trn at BMRI. Key aspects to look for in the results would be for signs of acceleration in growth now that the bank is flush with capital, the outlook on margins and potential for policy–related upside on asset write downs.