BBNI:Still cheap - Mandiri

BBNI’s results came in line with our expectation, thanks to strong 2Q results. Despite the possibilities of better 2H results, we maintained our forecast as the management indicated that a slower loan growth is likely in the 2H. Our concern remains on the bank’s asset quality, yet it has actually been reflected on the its lower valuation compared with its peers. Rolling valuation into 2012F provides strong upside from the current share price. Maintain buy.

Strong 2Q11 results. BBNI showed significant improvement in 2Q11, with net interest income growing by 10.6% qoq (vs 6.4% qoq in 1Q11), supported by strong loan growth of 10.3% qoq (vs 1.7% qoq in 1Q11). Corporate and consumer loans posted strong growth of 11.4% qoq and 10.7% qoq, respectively, representing 37% and 18% of total loans at end Jun11. Despite such strong growth, the management stated that it will maintain its loan growth target of between 17-20% yoy this year (in 1H11, loans grew by 21% yoy), indicating that a slower loan growth is likely in 2H11. The bank prefers to have proper loan acquisition process to aggressive loan growth in order to minimize the loan quality deterioration in the future.

.. yet impairment expenses still grew. Meanwhile, the bank’s NPL declined slightly to 4.0% at end Jun11 from 4.1% at end Mar11. Yet, it is worth noting that there was still an increase in absolute amount of NPL of Rp1 tn in 2Q11 after taking into account a Rp550bn writeoff during the quarter. This brought a higher impairment expenses during the quarter of 31.6% qoq to Rp913bn. Despite such high impairment expenses, the management affirmed that the FY11 impairment expenses would not exceed that in FY10 of Rp3.6tn. We thus maintained our FY11 impairment expenses at Rp2.5tn.

Forecast maintained. We maintained our forecast on the bank as the 1H11 results were basically in line with our expectation. Even though there remains concern on the bank’s asset quality, we like the management’s consistent efforts to improve its risk management covering lots of aspects like infrastructure, policies, risk organization and loan process. Moreover, our concern on the bank’s asset quality has actually been reflected in the bank’s target price of only at P/BV of 2.2x, a discount to average banking sector’s P/BV of 2.6x. Rolling our valuation into 2012F caused us to upgrade our TP from previously Rp4,500/share to Rp4,700/share. Maintain buy.