Saturday, May 7, 2011

Bank Rakyat Indonesia - Strong Main Business

by Samuel Securities

On 1Q11, BBRI booked net income as much as Rp3.2 tr grew by 24 YoY. This result was· above our expectation and market expectation. Strong operating business, changes on accounting standard, efficiency, and recovery loan are the buffer to support strong net  income on 1Q11.


Implementation of PSAK 50/55 boosted interest income significantly be·cause BBRI converted recognition of interest income from flat rate to effective rate (PSAK 31 still used on 1Q10). Management has decreased NIM of MSME loan as much as 50 bps due to tight·competition in MSME market. This policy will be used to maintain as well as to enhance market shares. As a follow up, we revise up our loan growth assumption because AG has approved dividend payout ratio of 20% or lower than our estimate at 30%.

Cost to income stood at 35.47%, lower than FY10 42.23% and 1Q11 37.13%. it was· supported by low personnel expenses growth and recovery loan as much as Rp445.6 Bn. Due to PSAK 50/55, recovery loan will be recognized as income as opposed to additional outstanding loan on PSAK 31.

 NPL slightly increase QoQ to 3.05% from 2.78% but NPL still at manageable level. Small· and Commercial loan fell the most 1Q11 as much as 140 bps QoQ to be 6.48% and we suspect the decline was caused by the poor decision making.

Action and recommendation:
We upgrade our target price as a result of forecast upgrade. Our new target price is· Rp7,600 reflecting 3.8x PBV compared to the average sectors PBV of 2.8x. We believe BBRI is feasible to be traded at premium, supported by the strong performance which was reflected by high NIM and ROE. Maintain BUY 

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