BTPN (BTPN IJ), Micro Masters, initiate with BUY by Bret Ginesky - Tp4,000 - CLSA

This is entrepreneurial spirit at its best in Indonesia. Management led by Jerry Ng (Brainchild behind Danamon DSP business) joined BTPN in 2008 and in a few short years have built the second most profitable bank in Asia in terms of ROA. This 100% consumer focused lending franchise manages to achieve a staggering 13%+ NIM, its book valued increased over 50% CARG since the bank reinvented themselves with new mgmt. With its massive underpenetrated consumer lending market, we forecast book value still to grow CARG 40% next three years. It will be hard to find a bank that can create value like this one anywhere in world.

Most profitable ROA Bank in Asia ex Japan: Higher yielding assets, cost to income (CIR) improvement and limited NPL’s should offset funding cost headwinds and establish BTPN as the most profitable (ROA) bank in Asia in2011.

Historical precedence: BTPN’s management team developed and implemented Danamon’s urban microfinance platform (DSP). We believe this team consisting of ex-Danamon execs will enhance the microfinance business while adding bolt on acquisitions. BTPN’s highly-profitable niche pension lending business (80% of loans) will remain the primary earnings driver for the coming years.

Challenges Remain: A weak funding franchise (CASA 12%) and lack of share price liquidity are the primary risks to BTPN’s growth trajectory. While CIR improvements will boost near term earnings, over the long term this will prove a challenge as micro, pension and funding branches can not be integrated, thereby driving higher costs than peers.

Attractive Valuation: Shares trade at 3.0x /12.7x 11CL PBV / PE a premium of 13% and discount of 4% to peers with forecasted net profit growth of 41% CAGR from 2009 through 12CL and the.

Our fair value of Rp4,000 implies a 3.2x / 14.7x PBV / PE for 12CL, and a 5.65% PPOP ROA in line with high ROA Indo peers.