Thursday, July 14, 2011

More than just Golden Oldies; Initiate with OW

by JP Morgan

BTPN is a leading player in pension payroll services in Indonesia and has built a high-margin, low-risk business in lending against pension receivables. Management has complemented this business with a network of 568 micro outlets that now contribute 20% of loans. We see BTPN as a high-growth, high-margin, quality bank and initiate coverage with an OW rating and a DDM based June-12 PT of Rp 4,200.

A pure play Retail and mass market lender: We see a major consumer credit opportunity developing in Indonesia over the next 2-3 years (see Industry Outlook, page 22). A focused retail and mass market lender, BTPN is a pure play on this coming trend, which should help to insulate it from potential asset yield risks to the sector.

High growth and high margins at a reasonable price: At the core of BTPN is a high-margin lending operation with low NPLs (0.08%). Growth should be boosted by the expansion of microlending, the infrastructure for which was put in place over FY09-10. At 15.4x FY11E PE, BTPN trades at a small discount to the Indonesian Banking sector but we believe it offers superior (30%) EPS growth over the next couple of years.

Core market likely to continue to grow in volume & wallet: 20% of Indonesia’s 4.6m civil servants are slated to retire over the next 6 years, and central government personnel expenditure has gone from 15% to 22% of budget expenditure over FY05-11 suggesting a high base line for future pensions as well as continued elevated levels of customer accretion. Proposed civil service reforms could advance retirements, accelerating customer growth.

· Weak deposit franchise and tenor mismatch key risks: BTPN liability franchise is limited, with time deposits being the main source of funding. This exposes it to both liquidity and interest rate risks, as well as substantial mismatch between the 2-7 year loan tenors against the 70% of liabilities we estimate will mature within 12 months.

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