PT Bank Negara Indonesia (Persero) Tbk Higher CASA and Better Assets Quality - AAA

BBNI posted excellent profit growth in 1H11 on tepid upper line growth and lower NPL which then resulting in lower provisioning. Going forward, the catalysts will be BBNI’s better assets quality and higher CASA ratio which will fuel future bottom line growth. BUY.

± Lower NPL, Better Profitability
BBNI reported robust bottom line result in 1H11 which grew 41% yoy, 18% qoq. 1H11 net profit was at Rp2.7 tn, in line and fueling 53% of our full year estimates. Such robust growth were primarily driven by tepid net interest income growth by 5% yoy, 6% yoy increased in fee based (due to Rp885 bn loan recovery) and lower provisioning expense by 25% yoy as NPL could be tamed down from 4.3% to 4.0%. The latter NPL ratio is lowest level ever achieved and is a contribution of loan written-off and speeding up loan recovery. Loan grew 21% yoy while third fund deposits up 9% yoy, resulting in higher LDR from 68% to 76%, which is positive, as it will reduce the penalty arising from BI’s Reserve Requirement constraint set at 80%.

± Catalysts
Although BBNI’s ROE is depleted to below 20% post rights issue, we still foresee strong future growth due to: 1). BBNI has now the biggest CASA portion after BBCA. Higher CASA implies lower CoF, hence it could offer competitive loan rate. Because of this, management has revised up their loan growth target from 17% to 20%, matching our estimate. 2). NPL is on the downtrend, which is a result of more selective lending, i.e. best players in SME segment in each region in Indonesia. 3). Should haircut bills be approved this year, the potential fee based will be around Rp5 tn, assuming 20% recovery of Rp25 tn loan written-off.

± Valuation: Reiterate BUY TP Rp4,700
We remain our positive outlook on the stock with TP of Rp4,700 based on Gordon Growth Methodology. Currently, the bank is traded at 1.8x PBV, an 18% discount from BDMN that traded at 2.2x PBV FY12F. Both stocks have the same level ROE in 2012. BUY.