PT Bank Central Asia Tbk Thanks to High Portion of CASA - AAA

BBCA unbeatable high CASA portion remains the catalyst for its profitability growth in all interest rates environment. With its low cost funding, NIM continued to increase and BBCA is well positioned to offer competitive rates.

± 1H11 Higher Net Interest Income and Gain on Provisioning Reversal
After a weak growth in 1Q11 at only 4% yoy, in 1H11 BBCA net profit grew 20% yoy, 38% qoq, led by 37% yoy higher net interest income. In addition, the ongoing reversal in provisioning expense to Rp120 bn (from Rp275 bn previously) also contribute positively to the bottom line. 1H11 net profit was in line and comprising 53% of our estimate, hence confirming our full-year bottom line figure which will experience relatively flat growth this year. Fee based income declined by 17% yoy due to lower proceeds of the government bond (financial assets) of only Rp136 bn in 1H11 (Rp1,1 tn in 1H10).

± Shifting to Higher Yield Earnings Assets Composition
BBCA is reducing its government bond holding as it is earning only 5% SPN (3-month T-Bills) instead of 3-month SBI that carried higher yield. The latter, however, has been removed from the market by the Central Bank. With lower portion of government bond, the portion of higher yield assets, i.e. loan, has increased to 63% (62% in 1Q11). Currently, the government bond stands at Rp37 tn (Rp42 tn in 1H10) while loan grew 21% yoy led by expansion in commercial loan by 41% yoy. Third fund deposits rose 12% yoy with CASA portion improved to 77%. NIM has slightly increased to 5.6% as saving rate decreased by 40 bps to 2.6%. NPL remained very healthy at 0.7%.

± Valuation: Upgrade TP to Rp9,200. HOLD.
The growth catalysts for 2011-12 are: 1) BBCA will benefit from potential higher interest rate environment in 2012 (see box in page 2). Plus, 73% of BBCA’s government bond is earning variable rate. 2) High CASA portion should entice more borrowers across all loan segments. 3) Higher potential fee income after the acquisition of securities firm. We roll forward our TP to FY12F at Rp9,200 implying 4.6x PBV. But we recommend HOLD since our TP only provides less than 10% upside compare to current price. Opportunity to BUY occurs if BBCA share is traded at its average historical PBV of 4.1x.