Monday, April 11, 2011

Clipan Finance Indonesia (CFIN)

by Clsa Securities

Ramping up

Despite having grown EPS at a blistering 36.7% Cagr over the past 3 years, Bret Ginesky believes that its full speed ahead for CFIN as he expects EPS to grow by 37% in 2011. This will be fueled by increasing leverage (CFIN below 2x gearing vs. sector average of 4x). CFIN also expects robust growth in consumer financing volume and plans to increase branches by 6 to 31 in 1H11. Combined with macro catalysts for J-curve growth in the sector, Bret keeps his BUY recommendation, with TP Rp1,100 representing +90% upside.

Key points from report:·

Expect 11CL earnings growth of 37% to Rp280bn and ROE of 17.1% as leverage (Asset/Equity) goes from 1.8x to 2.1x and loan volumes increase

· FY10 earnings up 33% YoY to Rp205bn, 3% ahead of CL forecast. Driven by 52% rise in gross receivables and increase in leverage (1.4x --> 1.8x)

· Increased B/S leverage drove profitability metrics as ROE rose 370bps YoY to 14.8% and Cost-Income-Ratio dropped -1300bps YoY to 22%

· 2011 plans: increase liquidity through bank loans (Rp2tn in avail. lines), a likely Rp500-750bn bond issuance, and increase branches by 6 to 31 in 1H11

· Catalysts are strengthening rupiah, low rates environment, delayed fuel subsidy removal and consumer credit penetration

· TP Rp1,100 gives upside of 90%. BUY. Valuation based on 40% discount to PBV of Indo peers (2.4x).

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