Bank Jabar Banten - PSAK compliance setback (BJBR-BUY-IDR1,110-TP:IDR1,550) - Bahana Sekuritas

14 March 2011 - Spotlight

Bank Jabar Banten (BJBR-BUY-IDR1,110-TP:IDR1,550)
PSAK compliance setback

2010 earnings of IDR890b (+25.5% y-y): Below expectations
Bank Jabar Banten (BJBR) reported FY10 net profit of IDR890b (+25.5% y-y), below our (87.1%) and market (83.8%) expectations on restated loan provision to comply with PSAK 50 & 55 and lower than expected loan growth. Loan grew 20.6% y-y (vis-à-vis 24.5% our estimate) to reach IDR23.7t at end 2010. Of 2010 total loans, consumer loans (mainly coming from loans to civil servants) accounted for 72.7%, followed by commercial and micro lending of 16.6% and 10.7% respectively. Loan quality remained steady with gross NPL of 1.9% (exhibit 9). Third party funding grew 37.3% to IDR32.0t, bringing LDR to 74.1% from 84.4% a year earlier. However, third party funding contracted 5.3% q-q. As earnings prior to the recent result had not complied with PSAK, quarterly comparisons will not be relevant. On the lending side, BJBR had secured 4Q10 net loan additions worth IDR1.3t or 5.6% q-q, helped by consumer loans (+4.0% q-q) and micro lending (+70.5% q-q) while commercial loans contracted -12.0% q-q.

Reiterate BUY with TP of IDR1,550, reflecting 2011 P/BV of 2.8x
BJBR’s share price has underperformed the market by 19% ytd mainly due to the overbought condition which coincided with positive market sentiment from its listing at IDR600 on 8 July up to IDR1,780 on 28 October. Based on the Gordon growth model, we derive P/BV of 2.8x for BJBR’s target price of IDR1,550. At current price level, we reiterate our BUY rating on the counter given high profitability with ROE of 22.0% (vis-à-vis 19.3% the industry’s average) and superior asset quality with gross NPL of 1.9% (vis-à-vis 2.9% the industry’s), justifying premium for this mid-sized bank. Additionally, with minimum dividend payout ratio of 50%, we estimate 2010 DPS of IDR46, translating to 4.1% yield. Going forward, our main concerns on this bank would be BJBR’s ability to tap new markets outside West Java coupled with its aggressive expansion into micro lending, targeting 20% of total 2011 loans vis-à-vis just 10.7% in 2010.

2011: Strong loan growth from both internal and external
BJBR’s 2011 earnings would mainly be driven by the expected 25.5% strong loan growth (vis-à-vis 30% the management’s target). As BJBR currently serves more than 70% share of the civil servants in West Java and Banten regions, the growth in civil servant loans would predominantly come from existing loans supported by increased wages, higher debt ratio and longer maturity. The opening of new branches in Outer Java regions would help widen its geographical coverage. Additionally, the external loan acquisitions through Regional Development Banks (BPDs) is likely to provide room for growth, targeted to reach IDR1.5t in 2011 vis-à-vis IDR466b in 2010. On the funding front, the bank is likely to slow growth in third party funding, aiming LDR at 85% (vis-à-vis 81% our estimate). The recent IDR2.0t worth of bonds with average 6-year maturity will be used to refinance IDR1.0t bonds maturing this year and prevent maturity mismatches going forward.