PT Bank Rakyat Indonesia Tbk (BBRI) First half 2011 results update - Ciptadana

PT Bank Rakyat Indonesia Tbk (BBRI) booked 57.1%YoY increase of net income to Rp6.8 trillion in 1H2011. The 1H2011 net income was 48% of our full year 2011 (FY11) estimation (inline). The bank’s 1H2011 net interest income increased 22.8%YoY to Rp16.6 trillion or 47% of our FY 11 estimation (inline). Although the 17.5%YoY growth of BBRI’s loan book in 1H2011 is not too impressive, the increase of net interest margin had helped.

NIM is stabilizing
Net interest margin (NIM) of BBRI in 1H2011 stood at 9.9%, higher than a year earlier which stood at 9.4%. The long downtrend of NIM has stopped in 2010 and going forward we estimate that NIM will stabilize in 9-10% range as it is clear that the management intent to limit its exposure to corporate loan (which has low asset yield). Ventures such as Teras BRI is an obvious signal that BBRI will try to strengthen and focus its presence in microbanking activities.

Management is confident with capital adequacy
BBRI’s management has shown confidence that the capital is adequate for loan expansion although CAR in second quarter of 2011 stood at 14.8%. However, in our opinion, there is a possibility that the bank will issue subdebt soon this year as it is already planned by the management (with no exact time of execution)price implies 2011 justified P/B of 3.5x with 14.8% cost equity and 23% sustainable ROE assumptions.

Maintain Buy on BBRI, increase target price to Rp8,600/share
We maintain our BUY recommendation for BBRI and increase target price to Rp8,600/share. Our calculation based on Gordon Growth model assumes 25% sustainable ROE (an increase from our previous sustainable ROE assumption of 24%) and 15% cost of equity.