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Jumat, 05 Agustus 2011

BBCA:No doubt, but still expensive - Mandiri

BBCA’s share price continued skyrocketing, reaching its highest at Rp8,850/share, translating into 2012F P/BV of 4.7x, the highest valuation in the region. It is difficult to justify BBCA’s current valuation from the ordinary valuation approach. We therefore tried to look from different angle, which is basically derived from the bank’s main strength: its deposit franchise. Using the deposit franchise approach, we arrived at a new TP of Rp9,000/share for the bank, which only provided limited upside from the current share price. Maintain neutral.

Minimal surprises from the 1H11 results. The bank’s 1H11 results were hardly surprising. Its performance was relatively stable, with net profit growing by 20.4% yoy in 1H11 supported by 43.3% yoy growth in net interest income. Note that such higher growth in net interest income was due to the transfer of around Rp50tn of the bank’s placement in SBIs (which interest income was recognized as part of non interest income) to term deposits.

Unbeatable strong deposit franchise … BBCA’s strong deposit franchise was again reflected in the 2Q11 results, whereby total deposits grew by 3.6% qoq, driven mainly by demand deposits (+5.9% qoq) and saving (+4.0% qoq). This brought CASA proportion to increase to 77.3% at end Jun11 from 76.6% at end Jun10, significantly higher than the average CASA proportion of commercial banks of 52.8%. What’s more interesting - despite such increase in deposits - its interest expenses contracted by 3.9% qoq in 2Q11 (the bank has cut its saving rate by total 25 bps since Apr11). Coupled with higher interest income (+4.5% qoq) as a result of improvement in earning asset mix, the bank’s NIM improved from 5.4% in 1Q11 to 5.6% in 1H11.

Strong asset quality maintained.. The bank’s asset quality remained sound at 0.7% at end Jun11, the lowest compared with its peers. BBCA was in fact recorded an upgrade on its Rp148bn NPL, allowing it to book net correction on impairment expenses of Rp120bn in 1H11.

Is the current valuation justifiable? BBCA’s current valuation is the highest in the industry. We believe this premium was due to at least 2 factors (1) expectation of interest rate hike which will benefit BBCA as it has huge excess liquidity and (2) the bank’s excess provisioning (estimated at Rp97/share if all NPL was considered as bad debt). Still, looking from this angle doesn’t justify the current share price. Another different approach is taken, whereby we tried to translate the earnings generated from its strong deposit franchise. Assuming average spread of 4.5% and cost per deposits of 3.5%, we arrived at our new TP of Rp9,000/share.

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