Indopremier Securities COMPANY_NOTES BMRI_20110124 Momentum is Positive

Regional bearish, fear on inflation and forthcoming right issue have put downward pressure to BMRI’s stock price. On the flip side, strong GDP, high loans growth, and favorable balance sheet structure give us optimist view for BMRI forward looking performance. Thus, we set our TP at Rp 7,500 per shares with 33.9% potential upside.

Meet Industry target

BMRI has enlarged its loan book to Rp 207.7 tn in October 2010, or 21% YoY increase from October 2009 figure of Rp 171.6 tn. It gives us assurance that BMRI will manage to achieve 21.4% loans growth to Rp 239.2 for year 2010. In addition net income showed 43.3% YoY increase in 10M10 to Rp 7.2 tn and expects to deliver Rp 8.7 tn for FY10. In addition, we estimate NPL to be stable at 2.7% up to end 2010.

Garuda To Support FY11 Bottom line

Garuda’s IPO is on the schedule and expected to support FY11 BMRI bottom line. At the present, BMRI owns 1,936 million shares in Garuda, or represent 7.54% ownership. With IPO price of Rp 750-1,100 per share, BMRI would get potential proceed around Rp 1.5tn to Rp 2.1tn. Garuda’s loan recovery should benefit BMRI’s FY11 loans provision and upgrading FY11 net earnings.  We have not yet incorporated Garuda’s effect into our calculation, but our estimates shows that the recovery of Garuda’s loan could lift FY11 net earning by 10%-13% from our original estimate of Rp 10.7 tn.

Temporary Pressure

Pressure on BMRI’s stock price is mostly affected by regional market sentiment, fear of inflation and forthcoming right issue price adjustment.  Fundamentally BMRI remains sound accompanied by its remarkable recent performance and strong balance sheets.  Strong loan growth in October 2010 is expected to continue in 2011 on the back of strong GDP of 6.2%. Tendency of increasing BI rate to 50 bps is likely to benefit BMRI’s NIM as lending rate would adjust to new equilibrium while deposit rate pressure should be limited by capital raising from imminent right issue. In addition, BMRI floating rate earning assets that almost twice of floating rate funding is likely set a benefit for BMRI’s earning asset yield.

Valuation

We maintain BUY recommendation for BMRI with TP of Rp 7,500 per share. Strong loans growth, excess liquidity, loans recovery and favorable balance sheet structure are the catalyst for BMRI upcoming performance. Our TP implies 14.7x and 3.5x of PE11 and PBV11.