BTPN NIM and ROE are the Highest in the Industry - AAA

NPL be somewhat higher in 2011 as loan growth will stabilize around 25% yoy. The bright side is that ROE and NIM remain one of the highest in industry. Robust demand in micro loan will be the catalyst to grow. BUY.

± 2Q-4Q11 Over 50% yoy Net Profit Growth is Expected
BTPN opened 2011 with 1Q net profit jumped by 76% yoy due to higher net interest income we expect BTPN could book around 30% yoy bottom line growth. On quarterly basis, we foresee that BTPN could post over 50% yoy net profit, mostly due to higher portion micro loan. NIM remained high at 12.9% but overall in 2011 NIM will be lower to around 10% due to pricing competition in micro segment, as BBRI, the leader in micro segment, have announced to cut yield in micro loan by 50 bps this year.

± NPL Could Be Somewhat Higher
Loan grew faster than third fund deposit at 39% yoy versus 34% yoy. As such, LDR went up to 91% from 88% in 1Q10. On yearly basis, pension loan that still made up 78% of total loan, increased 36% yoy compared to micro loan that grew 69%. Going forward, loan growth should stabilize at around 25% yoy due to stiffer competition in micro segment. Hence, we expect NPL by end of 2011 will be around 1.3% (2010: 1.1%). Long-term NPL will be around 2.5%. In 1Q11 NPL already stood at 1% as opposed to 0.6% in 1Q10.

± Valuation - Reiterate BUY. TP Rp3,300
After rights issue, BTPN has ample CAR ratio to sustain 25% average loan growth without the necessity to refuel capital in the next 10 years. In part, this is due to low risk weighted assets on pension and micro loan. But, the NPL is trending up as micro loans are somewhat riskier than pension loan. Despite that we are still comfortable with BTPN’s NPL level as it is still relatively low compared to the industry standard. With stable ROE at 24%, we reiterate our BUY recommendation with slightly higher TP at Rp3,300, as risk-free rate declined to 8.5% from 9%. Our TP implies 3.6x PBV below its +1.5x std at 3.7x.