Bank BTN (BBTN IJ), Super-sized Subsidized Housing Opportunity, BUY, TP Rp2,400 - CLSA

CLSA Indonesia Bank analyst Bret “the pool” Ginesky reiterates his BUY call on Bank BTN (BBTN IJ) and TP of Rp2,400 (45% upside). BTN has the #1 mortgage market share in Indonesia and is well positioned to build on this as the primary beneficiary of a super-sized subsidised mortgage budget in 2011. We expect the company to originate at least Rp6.2tn in subsidized mortgages in 2011.

Historically, BTN has utilized 90% or more of the subsidized funds, implying that BTN could originate over Rp8.0tn in subsidized mortgages in 2011. The average mortgage value is below Rp52.0m, thereby implying over 154,000 new subsidized mortgages alone. YTD the bank has originated nearly 13,000 non-subsidized units and over 33,000 subsidized mortgages.

Key Points from the report:
· BBTN is positioned to be the beneficiary of a supersized subsidised mortgage budget in 2011. The carryover from 2010 (Rp1.7tn) and 2011 (est. Rp3.5tn) implies that over Rp8.0tn in subsidized mortgages can be originated in 2011 and BBTN typically originates over 90% of these mortgages.
· The upcoming Rp2.5tn senior bond issuance’s yield will be nearly 200bps below last year’s issuance.
· We anticipate cross selling opportunities as BTN expands its consumer lending business to ancillary products for mortgage borrowers.
· Valuation: Shares trade at a discount to Indonesian peers, currently at 2.0x/11.7x 11CL PBV and PE. Our target price is based on a 2011 PBV/PE of 2.9x and PE 17.4x.