Downgrade BBCA Neutral (Report) & Upgrade BBNI EPS (Report) - Credit Suisse

1) BANK CENTRAL ASIA (BBCA): In-line +4% Y/Y 1Q11 EPS - Downgrade to Neutral
BBCA remains the best fundamental bank with very prudent Management, lowest LDR and highest CASA, however we downgrade to Neutral as BBCA is trading at Peak PBR (Figure 3) and Peak PER (Figure 4). During 1Q11, BBCA booked +25% Y/Y but seasonally -2% Q/Q loans growth with remains best Gross NPL 0.7%! At Rp7,600- BBCA is trading on 18.8x 2011F PER on +17% EPS growth, 4.7x 2011F PBR on 27% RoE, and implying 14% upside to Target Price Rp8,700. Personally, I will wait to accumulate on weakness!

· Teddy Oetomo(Report attached): 1Q11A PPOP and earnings in line. BBCA reported 1Q11A PPOP up 28% YoY, 20% of our FY11E forecast, while earnings were up 4% YoY, 20% of our forecast and 21% of consensus. BBCA's 1Q historically averaged at 20% of full year earnings as the bank books its employee's bonus payment on 1Q. The 1Q11A net income was up by 4% YoY despite the 28% YoY PPOP growth given a high base effect because of sizeable write-backs on 1Q10A.

· Fundamentals remain robust. We continue to be confident about BBCA's long-term fundamental outlook. BBCA exhibits the lowest LDR and highest CASA contributions to total deposits among all Indonesian banks under our coverage. Thus, we believe BBCA exhibits the highest growth capacity and earnings resiliency towards the risk of higher competition for funding.

· But valuations are stretched - Downgrade to NEUTRAL. BBCA's stock price has surged 31% on absolute terms in the past three months, outperforming the Jakarta Composite Index (JCI) by 22%. BBCA is currently trading at the highest 2011E P/B, 2012E P/B, 2011E P/E and 2012E P/E among all Indonesian banks we cover. We downgrade our rating on BBCA to NEUTRAL from Outperform given its demanding valuations. We increase our target price for BBCA from Rp8,200/share to Rp8,700/share. Our new target price is derived based on Gordon's growth model assuming an 8% risk free rate (from 8.5%) and 5% market risk premium. We reduce our risk free rate assumption for the Indonesia bank sector to reflect the downtrend in Indonesia's ten-year government bonds, our benchmark for the country's risk free rate. Our new target price for BBCA implies 5.4x the 2011E P/B, 4.5x the 2012E P/B, 21.5x the 2011E P/E and 17.5x the 2012E P/E.

2) BANK NEGARA INDONESIA (BBNI): In-line strong +22% Y/Y 1Q11 EPS - reit Buy!
We continue to like BBNI as Top-3 bank with Low LDR and High CASA, with upside from further company turnaround and future additional upside from state-bank npl hair-cut upcoming new law. During 1Q11, BBNI booked controlled +16% Y/Y and +3% Q/Q loans growth with improving Gross NPL 4.1%. At Rp4,100- BBNI is trading on Undemanding 13.7x 2011F PER on +14% EPS growth, 2.0x 2011F PBR on 16% RoE, and implying 22% upside to Target Price Rp5,000, therefore we reiterate BUY BBNI.

· Teddy Oetomo(Report attached): 1Q11 earnings, 23% of our old FY11 forecast: BBNI reported 1Q11 net income of Rp1,252 bn, up 22%YoY, which is 23% of our old FY11 earnings forecast and consensus' estimates. We expect BBNI's FY11E earnings to be back end loaded as the company is undergoing operational restructuring and thus, higher loan growth is expected in 2H11E than in 1H11E. 1Q11E new loans represent 20% of our FY11 expectations. 1Q11 provision expense came below our estimates, with gross NPL ratio dropping by 20 bp QoQ, allowing BBNI to sustain over 120% provision coverage. CASA contribution to total deposits grew from 53% in 1Q10 and 59% in 4Q10 to 60% in 1Q11.

· Tweaking our estimates: We tweak up our FY11-13 earnings estimates for BBNI by 4.1-4.6% to reflect the lower-than-expected provision expense. Management also indicated potential for higher recovery ahead throughout the rest of 2011. We also tweak up our FY11E tax rate to 25% given that the bank still incurred 25% tax rate in 1Q11. We foresee the potential for upside risk in earnings if the bank starts to enjoy the 5% tax rate cut, made available for the bank as it recently increased its free float to 40%.

· Maintain OUTPERFORM: We maintain our OUTPERFORM rating on BBNI given the bank's low LDR, high CASA and relatively less demanding valuations. We increase our target price for BBNI from Rp4,300 to Rp5,000 to reflect both our higher earnings estimates as well as reflecting Indonesia's lower risk free rate. Our new target price for BBNI is computed based on Gordon's Growth model, implying 2.45x 11E P/B, 2.12x 12E P/B, 16.7x 11E P/E and 12.81x 12E P/E.