PT Bank Negara Indonesia (BBNI) Growth is slowing, but valuation still attractive - Ciptadana

Maintain BUY on BNI and upgrading target price
We maintain our BUY recommendation on BBNI and upgrade BBNI target price to Rp5,700 from Rp5,300 in the back of book value expansion. Our target price assume 19% sustainable ROE and 15% cost of equity. The bank’s net income growth is clearly slowing if one compares it with the rapid growth years of 2009 and 2010 that the bank enjoyed during the rapid decrease of provision expenses due to rapid increase of loan quality. Although the decrease of net income growth is apparent we like BBNI for its relatively cheap valuation with 2.1x 2011 P/B , lowest price to book value among the major banks.

First quarter 2011 result
BBNI’s net income grew 22% in 3M11 (first quarter of 2011) to Rp1.25 trillion from Rp1.03 trillion a year ago. The growth of net income was largely due to decrease of operating expenses, provision expenses and the increase of fee based income as net interest income was not growing at all. We appreciate the management’s ability to decrease its cost of fund through the persistent effort to increase CASA as source of cheap funding. BBNI IDR’s cost of fund was decreasing to 3.3% in 3M11 from 3.6% in 2010 and 4.7% in 2009. CASA in 3M11 accounted for 60% of BBNI’s customer deposit compares to 59% in 2010 and 58% in 2009.

Expecting more aggressive stance to increase loan book
We expect BBNI to use its freshly injected fund from the recent rights issue to expand its loan book more aggressively. Our estimation for BBNI’s loan to deposit ratio (LDR) in 2011 and 2012 are 74% and 77%, higher than 2010 LDR of 72%. As the LDR is growing, net interest income can once again be the main driver of BBNI’s bottom line growth.