PT Bank Central Asia Tbk - Remain Solid - AAA

Summary
BBCA plans to cut savings account rate by 25 bps to offset lower benchmark
rate for its government bond. The net effect would result in 2% higher bottom
line. Despite that we still have our concerns, which are 1) yield declining
faster than COF. 2) loan provisioning would resume to normal in 2012 and
beyond, hence lower ROE. 3) most likely lower dividend payout, means lower
yield.

􀂖 Net Profit Surged on Lower Provisioning
BBCA reported their second highest net profit growth since 2008, with bottom
line up 25% yoy to Rp8.5 trillion. Given said that, it is actually no surprise as
the results represent 97% of our estimate and 103% of consensus. Looking
closely at their source of growth, it was derived from provisioning reversal
that made provisioning expense fell to Rp324 bilion (-86% yoy, -54% qoq). Net
interest income down 13% yoy to Rp12.9 trillion which was affected by new
accounting standard. On normalized basis, net interest income grew tepidly
(+5% yoy) to Rp15.6 trillion. NPL stayed low at 0.6%, less 20 bps from 0.8%
during 1Q-3Q, demonstrating prudence in selecting debtors. Even with low
NPL, conservatism remains with NPL coverage at maintained 394%.

􀂖 Overweight Loan to Plantation from Telco
Loan expanded by 24.2% yoy while third fund deposits up 18.6% yoy, which
brought LDR slightly up to 55.2%. CASA in FY10, rose to 75% vs 73% in 2009.
With competitive advantage on low cost funding, we believe the bank could
easily attain more than their conservative loan growth target of 15% this
year. By sector, consumer, commercial and SME booked the highest growth of
32% yoy and 27% yoy while corporate loan up 17.9% yoy. As of end FY10,
BBCA’s biggest loan by sector was in plantation and agriculture, a contrast to
previous year on which the telco sector received the most.

􀂖 More Earnings from Cutting Savings Account’s Rate
The bank plans to cut savings account’s rate by 25 bps but this is to
compensate the potential declining income from government bond which will
use lower benchmark rate to 3-month T-Bills from previously using SBI rate.
Usually, T-Bills rate is around 100 bps lower than SBI. Based on our
calculation, ceteris paribus, 25 bps cut on savings account would result in 3%
higher net profit, while using benchmark on T-Bills will result in 1% lower net
profit. Combining the two, the effect is a 2% increase in net profit.

􀂖 TP Reduce to Rp7,600 – Change to HOLD from BUY
Although we remain our positive on the bank, we reduce our TP from Rp8,300
to Rp7,600 on the following concerns: 1) loan yield declined faster -111 bps
than its cost -60 bps. 2) provisioning expense in 2012 and beyond, would
resume to normal, to 1% (based on avg. 4 year historical) vs 2010-2011, 0,3%,
curbing higher potential bottom line growth. Our new TP implies 4.5x PBV
FY11F vs current valuation, at 4.0x. As our TP only gives potential upside of
less than 10%, we change our recommendation from BUY to HOLD.