Bank Rakyat Indonesia -TP Rp8500

Boosting capital to maintain growth

Our View
􀂃 BRI is still recovering from the spiking NPL figure, due to loans in the small commercial (7.3%) and the medium loan (10.0%) segments, which had originated in 2008. To reduce further possible loan defaults, the bank has pulled the brake on the growth of these two segments. But in a prolonged global market slowdown, BRI may have to open the tabs of all loan segments to infuse overall growth at some point. The
good news is that, despite a hiccup in the segments’ NPL, the overall rate was kept in check at 3.3% by 9M11.
􀂃 The bank is in need of capital injection to maintain a high lending growth rate. With the recent secondary offerings by two other stateowned banks (Mandiri and BNI), BRI would not be able to conduct one in the near future. As a further cut in dividend payout rate has also been ruled out of the options, the management would have to increase Tier‐2 capital. A total subordinated debt issuance of Rp3t has been planned for next year. We estimate that BRI’s CAR would increase by nearly 2ppt to 17.2% by the end of the year, based on the loan growth of 18% in 2012F.
􀂃 We maintain our BUY recommendation on BRI at TP of Rp8,500/share (12.8x 2012F PER; 3.4x 2012F PBV), implying upside potential of 27% from the current price. We like BRI for: its high coverage on consumer lending; a relatively high portion of CASA; and low exposure to foreign exchange transactions. These factors have contributed to BRI’s ROE of 40%, the highest among banks under our coverage. However, lending risks still constitute a major drawback that BRI would likely face again should a market downturn recur.


Source: KIMENG dated 12 December 2011