Wednesday, April 6, 2011

Bank Jawa Barat (BJBR)

by OSK Securities

Venturing beyond its sphere

Initiating coverage with a Buy.

We initiate coverage on Bank Jabar Banten(BJB) with a Buy rating and a two-stage DDM-derived price target of IDR1,400,implying 24% upside. Recent underperformance has made valuation attractive fora growing bank that has ample liquidity, decent asset quality, sufficient losscoverage, adequate capital and a well-planned strategy.

Progressing beyond its home borders.

BJB‟s growth story involves two strategic avenues of branching out of its vibrant domain markets of West Javaand Banten (WJ&B) to become a national outfit and expanding its capabilitiesfrom relying heavily on a consumer-centric model (lending to Governmentsalaried employees) to micro and commercial lending. We think the plan isimperative to ensure continuation and diversification of growth, given that BJB isalready lending to 90% of Government employees in WJ&B. As it looks beyondWJ&B, its provincial dominance is unlikely to be disoriented.

Has ample fuel and sensible plan for the new roads.

Developing franchiseand riding the learning curves in new geographies are key strategic challengeswhereas its maturity gap could exert downward NIM pressure in rising rateenvironment. However it is ready for the journey, in our view: BJB is one of themost liquid among its regional development and commercial bank peers withLDR of 73.2%, sufficient loan loss cover at 140% and adequate capital with 23%CAR. Expansion strategy seems to be reasonably laid out.

Valuation has turned appealing.

Post a strong post-IPO performance in 2H10,BJB has underperformed the market by 17% YTD. Valuation has now turnedappealing with the stock now trading at 2011f 9.6x EPS or 2.0x BV and we thinkthe risk-reward balance at current level is favourable. We expect BJB to poststable ROAEs at above 21% with earnings growth averaging 18% in 2011-13f.Key risks: expansion difficulties in newly ventured markets leading todeterioration in asset quality, worse than expected NIM compression

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