BBRI Higher ROE, Lower NPL - AAA

2010 dividend payout is inline with the estimate at 20%, implying a yield of only 1.7%. However, future NPL should go lower due to relatively manageable inflation. At the same time, BBRI ROE still is the biggest among peers. BUY.

± 1Q11 ROE at 37%; Net Profit Jumped 52% yoy
Today Bank Rakyat published their first quarter net profit of Rp3.3 trillion. Jumped by 52% yoy. Across the board, the number was in line, net profit fueled 24% of our forecast, signaling that this second biggest bank in Indonesia should book Rp13.6 trillion net profit by the end of year. 1Q11 number were strong, unlike BBNI which showed flat growth on the upper line. BBRI’s net interest income rose 22% yoy, fee based up 50% yoy. Those translated into higher NIM of 9.7% from 9.4% while 1Q11 ROE reached 37%.

± Better Asset Quality, NPL Down Almost 100 bps
Loan grew 20% yoy to Rp251 trillion, on the back of the increase in deposits of 20%, forming an LDR ratio at 85%. CASA reached 55% as the bank are moving more into urban customers to eye low cost funding through “Untung Beliung”. NPL pressed down to 3.1% from 4.1%, as the medium loan, the one that brought most bad debt loan decreased. We expect that by the end of year, NPL should go lower to 2.5% with ample coverage ratio of more than 200%. Our view on BBRI’s NPL is supported from relatively low interest rate regime.

± Valuation, BUY with TP Rp7,400
With reference to our previous report on BBRI “Beating The Street”, which we estimated dividend payout would be around 19%, yesterday, in general annual meeting, the company declared a dividend payout of 20%. This will translate into dividend yield of just 1.7%, however, it should be noted that the bank in 2011, will still have the biggest ROE among peers with manageable NPL. We maintain our BUY recommendation on the stock, as our TP still offers 13.0% potential upside. Our TP implies 3.8x PBV, slightly higher than its +1Std of 3.5x. Currently the bank’s share price only traded at 3.2x PBV. BUY.