PT Bank Rakyat Indonesia (Persero) Tbk Growth With Quality - AAA

BBRI aims to grow with quality. Loan has been growing at modest pace, while NPL has been pushed down lower. In terms of profitability, NIM is on an upward trend due to higher portion of micro loan. Meanwhile, micro loan demand continues to be robust.
± Strong Performance

BBRI continues to post strong bottom line growth at 57% yoy, 8% qoq thanks to higher composition of high yield micro loans. This, despite its lower than the industry loan growth of 17% versus the industry of 25% yoy. As such, net interest income was up by 23% yoy, 4% qoq. Fee based income also rose 33% yoy, 18% qoq mostly due to Rp897 bn from SME loan recovery. 1H11 net profit stood at Rp6.7 tn, in line and accounted for 50% of our FY11F estimate.
± Higher Portion of Micro Loan Results in Higher NIM

Micro loan now accounts at 32% of total Rp265 tn loan, the highest portion level ever. It has grown by 35% yoy, sending NIM to 9.9% from 9.4%. At the same time, BBRI is reducing its SME loan portion to 28% (from 28.49% previously) as it carries high NPL (7.5% for small and 9.3% for medium loan). Meanwhile, influx of funding remained healthy with 15% yoy growth and with CASA ratio stable at 57%.
± Pushing Down NPL

Aside from robust loan demand in micro segment, the catalyst in 2011 will include better assets quality. In 2Q11, NPL has been pushed down to 3.6% from 4.3%. By the year-end, we expect BBRI could reduce NPL even lower to 2.5%. Among many initiatives to achieve this, BBRI is placing 2 senior credit officers in every branch to supervise and to speed up the loan collection and restructuring process.
± Valuation, BUY with TP Rp8,200

As the 1H11 results is in line with our estimates and the share price has gone up by 33% ytd, we roll forward our TP to FY12F at Rp8,200 which implies 3.3x PBV. The current valuation is still attractive as BBRI’s share is trading at 2.8x PBV FY12F, while historically it was traded at 3.5x. BUY.