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Rabu, 08 Juni 2011

BBCA - Not a good year - Ciptadana

HOLD recommendation with target price of Rp6,600/share
We change BBCA recommendation from BUY to HOLD with target price of Rp6,600/share. The bank showed unimpressive results in first quarter of 2011. The bank is struggling to maintain its asset yield in the low interest rate environment. BBCA business model tends to avoid high risk (high return) asset and prefer low risk (low return) asset to fill its balance sheet such as SBI. We derived our target price from Gordon Growth model with assumptions of 23% sustainable ROE and 14% cost of equity. Our financial model suggests P/B 2011 of 4.2x and P/E 2011 of 20.2x for BBCA.

Weak first quarter result
BBCA net income only grew 4.4%YoY to Rp2 trillion in 3M2011. The bank’s operating income stood at Rp2.5 trillion in 3M2011, increased 4%YoY. BBCA’ net interest income growth could not cope with provisioning expenses. Note that BBCA booked loan reversal of Rp304 billion a year ago. We expect that 2011 will not be a good year for BBCA as we estimate that net income will only grew 0.5% to Rp8.5 trillion in 2011.

Struggling with the decrease of asset yield
The bank is struggling with the decrease of asset yield. Asset yield is declining faster than cost of fund. Although net interest margin was picked up on YoY basis we expect that this trend could not continue as competition in attracting CASA is getting tighter and Indonesia is in the period of long term decrease of interest rate.

Expanding LDR is inevitable to maintain growth
One logical choice for BBCA to increase its asset yield is expanding its LDR. We expect LDR will increase gradually from 55% in 2011 to 65% in 2013.

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