PT Bank BJB (Persero) Tbk Mediocre Results and Trading at Bargain - AAA

Bank BJB 1H11 net profit was not too strong, CIR up on more employee, with NIM down on lower assets yield and lower CASA ratio. NPL stays flat from previous quarter. But the bank offers highest dividend yield and at bargain.
± Flat Growth Due to Accounting Method

Bank BJB reported flat net profit growth in 1H11. According to management, that was due to the full implementation of the new PSAK 50&55 where in during 1Q10-3Q10 Bank BJB was still using the old PSAK, hence comparable growth is not suitable. But looking at quarterly basis, 2Q11 net profit grew only 9%, far lower than 2Q10 where net profit still grew 60%, which may clarified the stock has been underperform, -26% ytd aside from sentiment that 82% of BJB’s assets are concentrated in WJ & Banten.
± Adding More Employees to Support Micro Loan Growth

Higher operating expense by 76% qoq was due to the increase of employee from 1,996 to 2,137. CIR up 40% to 47%. The bank added more employees in accordance with strategy to bigger micro loan portfolio which now stands at 11% of total loan as compared with 8% in 2Q10. Micro loan grew 54% yoy, highest among other i.e. consumer that up 17% yoy and commercial loan that increased 29% yoy. CAR ratio has been draining quite fast from 22% in 4Q10 now stands at 19%, which we foresee by FY14F, rights issue is highly probable since CAR will be at 14%. Third fund party funding rose 6% yoy as demand deposits plunged 8% yoy. The bank’s dependency to Government’s cash has subsided gradually as CASA only stood at 40%. NPL up to 2.4% which was mainly contributed commercial loan. The bank will speed up collection and assets foreclosure, hence we believe NPL could be pushed below 2%.
± Valuation, BUY with lower TP Rp1,300

We decrease our FY11F number as 1H11 results accounted only 46% of FY11F. We decrease net profit by 8%/10% for FY11F/FY12F mostly on continuing lower NIM as the bank offers low rate to compete with big banks while CASA remain low. As such we cut our TP from Rp1,500 to Rp1,300 FY11F, represents 2.3x PBV FY11F. Current valuation is still attractive, only at 2.0x PBV, below its -1std historical PBV at 2.1x, coupled with highest div. yield , it’s a BUY.