Bank BJBR -TP1300

Burgeoning dividend play
Our View
􀂃 Despite experiencing a rebound in its earnings this year, BJB has been losing momentum in the midst of slower loan growth. Moreover, its increased NPL poses a threat to its margin and profitability. Its net profit in 3Q11 was Rp251b, falling by 12% q/q. This is the slowest profit growth yet for 2011. We project an even lower 4Q11 EPS as BJB will be focusing on improving its assets quality before returning to an aggressive expansion mode. Our YE11 net profit estimate is lower than the bank’s initial guidance of Rp1.1t by 8%.
􀂃 Although BJB’s 9M11 net profit progress is disappointing, its YTD credit growth of 18% is actually in line with the industry’s average. Based on our estimate, BJB would be able to match this pace (20% y/y) next year. The bank has sought to counter criticisms regarding its limited coverage area by expanding beyond West Java and Banten. This
strategy has kept deposit growth in check, but raises a new concern on loan solvency. NPL rate inched up to 2.6% for 9M11 from 1.9% by YE10. In our view, the declining quality of its loans constitutes a major obstacle in BJB’s pursuit of its expansion plans in 2012F.
􀂃 We maintain our BUY recommendation on BJB at TP of Rp1,300/share (10.3x 2012F PER; 2.0x 2012F PBV). Our price suggests a hefty upside potential of 45% from the current level. However, compared to the other banks we cover, BJB’s financial performance is middling. The bank is more attractive as a dividend play, because it offers the highest yield in the medium term. We base our assessment on BJB’s ample
capital and its dominant position as the main source of income for the West Java and Banten Regional Governments.


Source: KIMENG dated 12 December 2011