Thursday, October 18, 2012

Indonesian Bank Reiterate soft 2H12 trends

DBS : Bank
By Lim Sue Lin             +603 2711 0971      ;
Indonesia Research Team

· Unexciting 3Q12 results but there are exceptions; expect moderate growth
· Banks sound cautious, anticipating softer growth prospects
· We still like BBRI, but switch to BBTN (for small cap)

3Q12 show moderating trends. Following our sector report in mid-August and our recent visits to Indonesian banks, we reaffirm our view that loan growth and NIM should moderate in 3Q12. We see limited room for cost of funds to improve further given that FASBI rates are now on an uptrend. Most banks would have experienced stable cost of funds, except BBCA (which lowered deposit rates in Jul 12). We expect positive surprises from BBCA and BBTN and sustainable strong momentum at BTPN in the upcoming result season, which might defy industry trends.

Cautious tone ahead. Bank Indonesia (BI) aims to cool consumption loans while trying to boost investment loans in line with future infrastructure projects. It hopes this strategy will ensure employment opportunities remain strong and the wealth effect would trickle down to create more sustainable consumption growth. So far, the LTV and DP rules have not slowed retail loan growth, implying there may be more policies to tighten consumer lending. Aug 12 loans grew 24% y-o-y but we expect 2012 growth to end at 22% premised on a slowdown in 2H12. We feel banks are turning cautious going into 2013 in anticipation of macro policy headwinds. Our 2013 loan growth forecast remains at 20%. Separately, the Otoritas Jasa Keuangan or Financial Services Authority (OJK) will kick start operations on 1 Jan 13. Our concern is possible changes to banking regulations going forward.

Our top picks (BBRI and BTPN) have done well; retain BBRI, accumulate BBTN. BBRI has risen by 36% from its low of Rp5,650 when we issued a report on 1 Jun 12 citing concerns had been priced in at that level. BBRI remains a Buy although upside potential has narrowed following the share price recovery, but note that 3Q12 result may be soft. Our bet on BBRI remains its 2013 prospects. Meanwhile, BTPN is the best performer todate, yielding 50% returns. We downgraded BTPN to HOLD on valuation. We are bullish on BBTN and see trading opportunities as it rallies towards its rights issue date and on expectations of strong 3Q12 result.

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