Bank BJB (Target price Rp1,900)

Doubling micro business
Bank BJB intends to expand its micro division by opening up 400 micro units this year called 'Warung BJB" (BJB stall). Out of all the micro units to be opened, 200 will be operating in the wet markets (predominantly in West Java and Banten areas), while the rest will be located within the banks' branches and sub-branches. The micro units openings are expected to support the bank's target to double micro loans from Rp2.9tr in 2011 to Rp6tr in 2012 (up from previous growth target of 45-50%). Assuming a 25% overall loan growth in 2012, micro would contribute to c. 16% of total loans.

Execution risks priced in
In the past, poor execution caused high micro NPL because BJBR was a newcomer . At that time, Standards of Procedure (SoP) and loan-monitoring were weaker. The bank sees opportunities, and is working to improve micro loan-underwriting. The bank has now revamped its SoP, such as more stringent risk-profiling and established a credit-risk reviewer division. The new
division aims to enhance micro loan-monitoring, which was previously lacking. Since early 2010, micro loans have now almost doubled in growth and contributing to 10.5% of total loans (up from 7.5% in early 2010). Despite execution risks (relating to its micro expansions), we think this may have been priced in resulting into the stock's 40% underperformance to the index (and 34% decline) in 2011. Also, foreign ownership of the stock has declined to 6% (from its peak of 12%). However, the bank has indicated a decline in its micro NPL from its peak of 5% in 3Q11. Consequently, we see limited downside risks. At 7.2x 12F earnings and 1.5x 12F book, the stock is about 40% discount to sector average. We have also estimated net dividend yield of 5% and EPS growth of 17%, ahead of sector average of 15%.

Source: Deutsche Bank dated 10 January 2012