PT Bank Central Asia Tbk. Flat Bottom Line Growth - AAA

In the longer term, the bank’s ROE will still stay at a premium level of 25%. However, this year we foresee the possibility of flat bottom line growth because yield declines faster than COF and provisioning will resume to normal. Our assign TP is at par with its +1.5 Std at 4.6x PBV and currently the stock is traded at 4.4x PBV. Given its high valuation and weak growth we reiterate our HOLD recommendation.

± Weakest Quarterly Bottom Line Result
BCA reported the weakest quarterly result ever since, with net profit only rose 4% yoy to Rp2 trillion. The major cause of this flat growth was the provisioning expense that come back to normal, is in line with our thesis on previous report “Remain Solid” where we mentioned our concerns : 1) Yield declining faster than COF. 2) Provisioning would resume to normal. 3) Most likely lower payout. In 1Q11, provisioning expense was up 142% yoy to Rp129 billion vs. reversal of Rp304 billion in 1Q10. On annual basis, yield declined 90 bps to 8% vs. COF that slid only 20 bps to 2.8% resulted in slightly lower NIM of 5.4% from 5.5% and ROE down to 26%. We anticipated lower payout this year at around 30% to sustain the bank’s CAR ratio at 14% level.

± 2011 Catalyst: Strong Consumer Loan
While deposit plunged 1% yoy (-3,4% qoq), savings and demand deposits increased by 19% and 20% respectively, pushing up CASA to 76% vs. 73% in 1Q10. Overall loan grew 24% yoy with strongest growth booked by consumer loan at 36% yoy. In 2011, main catalyst for BBCA will be the growth on consumer loan. The latter is supported by rising middle-income population that has reached 57% in 2010 vs. 38% in 2003 (ref: The World Bank). Higher middle income population benefits auto and real estate industry, two sectors that comprised 37% and 50% of BBCA consumer loan.

± Valuation, HOLD with TP Rp7,600
We reiterate our HOLD recommendation with unchanged TP at Rp7,600 implying 4.6x PBV which is at par with its +1.5 Std historical PBV. Currently, the BBCA’s share is traded at 4.4x, hence providing only a limited potential upside to its fair value given high possibility of flat bottom line growth.