Positive fundamentals but expensive valuations — Prices have rallied back into the +0.5 std territory following: 1) above-consensus 4Q10 results; and 2) receding inflation concerns (March CPI 6.55% vs Jan peak of 7.14%). We now 1) Downgrade BBCA to Sell on valuations; 2) Upgrade BBRI to Buy (+17% target price on EPS revision for new accounting policy). BMRI remains our Top Buy and BBCA is now our Top Sell. We maintain our Sell on BBNI (weak operating performance in 4Q) and BDMN (expensive valuations). An uncertain global environment plus the end of QE2 makes Indo banks more vulnerable to high valuations
Key 2011 themes — Rising GDP growth (6.5% in 2011F) should support another year of 20% loan growth. Regulator favors lending growth, forcing banks to either lend or shed excess liquidity (+ve BBRI and –ve BBCA). Citi’s lower BI rate forecast of 7.25% by Dec 2011 (prev. 7.5%) is positive for BBRI. Another recent change is the benchmarking of recap bonds with T-bills (prev. SBI), which is most -ve for BMRI, followed by BBCA and BBNI. Impact on BMRI will be mitigated by cash recoveries (including the Garuda write-back). While lending rates continue to inch down, BMRI loan yields have been the most resilient in 2010.
Risks — Bond investors have so far shown stronger faith in Indonesia , bringing down 10-year bond yields to 7.75% (recent peak of 9%), and leading to stock rerating. Citi forecast for Dec 2011 remains unchanged at 9% (BBCA is pricing in bond yield of <7.5% while BMRI, BBRI and BDMN are pricing in 9% on PER). Combination of -ve real rates and strong currency are feeding consumption that may lead to higher inflation, if infrastructure bottlenecks are not removed. This risk is highlighted by strong consumer loan disbursements since Sep 2010, despite higher inflation.
4Q10 results insight — Banks exceeded expectations due to: 1) higher loan growth (8% QoQ); and 2) lower credit cost of 0.8% in 4Q (2.2% in 3Q and 1.7% in CY10). BBCA was the best performer on both counts but its deposit growth has slowed. BMRI NIMs declined due to changing asset and deposit mix. BBNI operating performance remained weak, with a sharp decline in NIMs but offset by cash recoveries. BBRI surprised with the change in accounting policy, and higher operating expenses.
Jumat, 08 April 2011
Indonesia Banks: Big Picture - Switch from BBCA to BBRI: Valuations plus Liquidity - Citigroup
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