PT Bank Negara Indonesia (Persero) Tbk ROE Below 20%, But With Better NPL - AAA

Post rights, ROE in 2011 and beyond would be hard to reach 20% in our view, as net profit growth would resume to normal as opposed to 50%-100% during FY09-FY10. Furthermore, BBNI will focus on lowering NPL to around 2.9% and will adopt a strategy in selective lending.

± 1Q11 Net Profit Rp1.3 tn, Up 22% YoY
In 1Q11, BBNI booked net profit Rp1.3 trillion, or grew 22% yoy contributed by 1) Declining operating expense by 8% yoy, which is then reflected in better cost-to-income ratio to 44.5% from 50.4%. 2) Lower provisioning by 5% yoy on higher assets quality, as NPL tamed down to 4.1% from 4.6%. On the upper line, net interest income growth was flat, as the bank cut out loan yield from 12.1% to 10.4%. NIM slightly declined to 5.7% from 5.8%. Going forward, we expect loan yield to be at an average of 10.2% on better CASA funding, which is positive for loan growth.

± Healthy Loan Growth Would Be Primary Focus
CASA portion increased to 61% from 54%. Overall funding only expanded by 8% yoy as savings and time deposits slid by 6% and 8% respectively which was due to seasonality, like what happened in 1Q10 when third party deposits only grew 6% yoy. Nevertheless, with capital injection from rights issue, in 1Q11 loan increased moderately at 15% yoy, translating into LDR at 73% from 67% in previous year. Up to the end of 2011, BBNI targeted loan growth of 15%-20%. The bank currently focuses on minimizing NPL through more selective lending. On this basis, we see that NPL could go lower to around 2.9% as opposed to 3.4% in FY10.

± Valuation, BUY – New TP Rp4,700
Post-rights, the bank’s share price is currently traded at only at 2.0x, which was mostly driven by lower ROE (adjusted). Going forward ROE would be hard to reach 20%. Furthermore, to sustain CAR, we anticipated dividend payout would be around 20%. This higher retention ratio will result in higher book value. Overall, those lead to higher TP of Rp4,700 from Rp4,400 previously. Our TP reflects 2.3x PBV which is at the same level with its +1 Std.