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Sunday, October 21, 2012

Strong as expected

by DBS

Bank Tabungan Negara : BUY; Rp1,460;

Price Target : Rp1,700; BBTN IJ

Strong as expected

·          3Q12 net profit of Rp362bn was spot on with our forecast; 9M12 at Rp1,021bn (73%/77% of our/consensus forecast)
·          NIM uptick due to cost of funds bottoming
·          Maintain BUY with TP Rp1,700

Highlights

Non-subsidised mortgages drove loan growth (+29%y-o-y, +6% q-o-q). BBTN demonstrated its ability to register strong growth despite several policy issues concerning subsidised mortgages throughout this year. The slower disbursement of subsidised mortgages (+6% y-o-y, +2% q-o-q) was offset by robust non-subsidised mortgages (+50% y-o-y, +11% q-o-q) and non-housing loans (+59% y-o-y, +7% q-o-q). The composition of non-subsidised to subsidised mortgages now stands at 50:50 vs 40:60 a year ago.

NIM uptick on the back of bottoming cost of funds. Cost of funds bottomed in 3Q reflecting the full impact of rate cuts in 1H and accompanied by improving CASA structure to 42% (3Q11: 36%). Asset yields moderated although at a slower rate than cost of funds due to promotional mortgage rates.

Asset quality remained manageable. Improvements in origination and collection procedures have been visible. NPL ratio stood at 3.68% and has been trending down compared to a year ago. BBTN’s NPL coverage is low at 37% after implementing PSAK 50/55. Management is comfortable with this ratio although it is lower than industry, as most of the loans are fully collateralised.

Our View

Finally cleared of most obstacles. After facing several headwinds since the beginning of this year, BBTN has been receiving a spate of good news throughout 3Q12. Revised scheme for subsidised mortgages, effective Sep-12 involved the following: (i) increasing subsidy share to 70% (previously 50%), and (ii) increasing maximum tenure to 20 years (previously 15 years). To further speed up disbursements, the Minister of Housing has removed the minimum house size criteria (previously 36 sqm).

Recommendation

Maintain BUY with TP Rp1,700 using Gordon Growth Model (18.4% ROE, 11% growth and 16% cost of capital). Near term catalysts for the stock are continued strong earnings and growth momentum as well as its rights issue (ex-date 19 Nov). Despite positive newsflow, policy risk remains a concern and could cap BBTN’s valuation at below industry average (2.0x BV ex-BBCA).

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