Tuesday, April 29, 2014

Bank Central Asia (BBCA IJ; Buy; TP IDR12,000) Results Review: Sustaining Excellence


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Bank Central Asia (BBCA IJ; Buy; TP IDR12,000) Results Review: Sustaining Excellence

Bank Central Asia’s 1Q14 results met expectations. Asset yields rose to offset upward pressure on CoF and NIMs expanded. The maximum TD rate was lifted further and we see it as a strategic move to protect liquidity as well as raise lending rates further to protect margins. Meanwhile, loan-to-CASA broke the 100% level for the first time while asset quality remained healthy. We take 1Q14 results positively and maintain our BUY call.

¨       1Q14 results met expectations. Bank Central Asia booked IDR3.67trn of net earnings in 1Q14 (-6% q-o-q; 27% y-o-y), representing 23% of our and consensus’ full-year estimates. Net interest income grew 4% q-o-q (27% y-o-y) to lift 1Q14 net interest margin (NIM) higher by 13bps q-o-q or 50bps, relative to 4Q13 and FY13 respectively. Asset yields increased 38bps q-o-q to offset upward pressure in cost of funds (CoF) of 28bps q-o-q. Costs rose 19% q-o-q (26% y-o-y) on seasonal bonus payment, but net credit costs moderated to IDR342bn (-39% q-o-q; -13% y-o-y) or 42bps of loans (4Q13: 72bps).

¨       Mild pressure on liquidity and asset quality. Loans growth moderated to 2% q-o-q; 20% y-o-y with the most notable drop in the consumer segment, driven by a slowdown in mortgages (flat q-o-q; 21% y-o-y). Its strategy to lift the time deposit (TD) rate resulted in acceleration of TD growth to 31% y-o-y, which outpaced current and savings deposits (CASA) growth of 6% y-o-y. Loan-to-CASA ratio hit 100% for the first time. Mild pressure on consumer non-performing loans (NPL) was seen, but the overall gross NPL ratio stayed superb at 0.5%, with coverage ratio at a comfortable 388%. As of March 2014, tier-1 and capital adequacy ratio (CAR) sat at 16.8% and 17.7% respectively.

¨       Takeaways from analyst briefing. Starting from April 2014, the maximum TD rate has been lifted to 9.25% (vs 7.5%) for large deposits. Bank Central Asia indicated that 70% of its TD customers deposit below IDR2bn, hence, the rate adjustment will only impact 30% of its TD customers, or approximately 6% of its total depositors. The TD rate adjustment should be seen as Bank Central Asia’s attempt to ‘test’ the market, protect liquidity and raise lending rates - which it plans to do by 50bps - in the corporate and small medium enterprise (SME) segments.


Best regards,
RHB OSK Indonesia Research Institute

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