Top Down Strategy and Large Cap Stock Picks - the DBS Vickers ...

Regional Equity Strategy Q4 2007
Stock Profile: Bank Rakyat Indonesia
BUY Rp6,200 JCI : 2,223.2
Price Target : 12-Month Rp 7,797
Potential Catalyst: Stronger loan growth
ANALYST
Agus Pramono CFA +6221 3983 2668
agus.pramono@id.dbsvickers.com
FORECASTS AND VALUATION
FY Dec (Rp IDR) 2005A 2006A 2007F 2008F
Pre-prov. Profit 5,713 7,633 8,461 10,285
Net Profit 3,749 4,258 5,148 6,562
Net Pft (Pre Ex.) 3,749 4,258 5,148 6,562
EPS (Rp) 305.0 346.4 418.8 533.8
EPS Pre Ex. (Rp) 305.0 346.4 418.8 533.8
EPS Gth Pre Ex (%) 10 14 21 27
Diluted EPS (Rp) 303.5 344.7 416.7 531.2
PE Pre Ex. (X) 20.3 17.9 14.8 11.6
Net DPS (Rp) 147.8 154.9 173.2 209.4
Div Yield (%) 2.4 2.5 3.0 3.4
ROAE Pre Ex. (%) 29.1 28.2 28.0 30.0
ROAE (%) 29.1 28.2 28.0 30.0
ROA (%) 3.3 3.1 3.2 3.7
BV Per Share (Rp) 1,086 1,373 1,619 1,943
P/Book Value (x) 5.7 4.5 3.8 3.2
SHARE PRICE CHART
Rp
7252.40
6752.40
6252.40
5752.40
5252.40
4752.40
4252.40
Sep-06 Nov-06 Feb-07 Apr-07 Jul-07 Sep-07
Bank Rakyat Indo 100-Day MA
AT A GLANCE
Issued Capital (m shrs) 12,315
Mkt. Cap (Rpbn/US$m) 76,353 / 8,147
Major Shareholders
Govt of Indonesia (%) 59
Free Float (%) 41
Avg. Daily Vol.(‘000) 14,000
Bank Rakyat Indonesia
Better be safe
Story: Like last quarter, BBRI is our top pick for this 4Q07. It
has strong fundamentals and fits into our theme this quarter,
which is quality stocks with domestic exposure.
Point: BBRI has a non-replicable competitive advantage
through its dominance in the micro and SME credit segments.
The bank has an extensive network of branches in rural areas
that are run by officers who can relate to the locals and
understand local cultures. In addition, BBRI exposure to
consumer and corporate lending is still small, which means it still
has room to grow revenue from these segments.
Relevance: We maintain our BUY call for BBRI with a target
price of IDR7,797, or 4x FY08F P/BV.
Better be safe. We believe BBRI is a safe bet on the Indonesian
banking sector in the event of a slowdown in the global economy,
rising interest rates, and a major correction in the equity market.
This is premised on: (i) strong exposure to micro lending; (ii) high
NIM; (iii) its PBV multiple being lower than justified.
Strong competitive advantages. With extensive network of
outlets in rural areas, a strong rural customer base, and its
experience in handling ‘un-bankable’ clients, BBRI has a strong
competitive advantage that is reflected in its high ROE of at least
28% for the last five years, higher than its peers. On the other
hand, the bank has high quality earnings that are independent of a
cyclical sector such as auto loans.
More room to grow. BBRI is starting to look at other segments
such as mortgage loans, consumer and corporate loans. These steps
are growth enhancers, as the bank has a policy to limit exposure in
certain segments e.g. 20% cap on corporate loans. At only 14%
currently, BBRI still has room to grow corporate loans by Rp5.8tr.
On the other hand, BBRI is less affected by the current tight
competition in the consumer segment that has led to a price war.
Unfairly valued. We capped BBRI’s valuation at 4x FY08F PBV,
implying 25% ROE. This is below its sustainable ROE of 29%, which
means our valuation is conservative. On the contrary, some banks
are valued at higher ROE than their sustainable ROE.
Earnings Rev (%): 2007: - 2008: -
Consensus EPS (Rp): 2007: 413.6 2008: 500.6
Variance vs Cons (%): 2007: 1.3 2008: 6.6
Sector : Banks
Bloomberg/Reuters Code: BBRI IJ/BBRI.JK
Principal Business: Banking
Refer to important disclosures at the end of this report
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