Bank Central Asia’s loan book expanded 6.6% QoQ

In-line 2Q11 results; maintain Neutral. BCA’s IDR2.78b of net profit in 2Q11 (37.7% QoQ; 35.4% YoY) took 1H11 bottom line to IDR4.79t (6.5% HoH; 20.4% YoY) – which were in line with our and consensus’ expectations. We read the overall results positively and in the first briefing delivered by its new CEO, we sense that BCA is entering into an offensive mode which prompted us to adjust our terminal growth rate higher to 10.6%, resulting in higher TP of IDR8,500, implying FY11 21.2x PER/ 5.1x PBV. Notwithstanding BCA’s premium quality, its rich valuation is behind our Neutral call.

Pleasant surprise in NIM. Loan book expanded 6.6% QoQ (21.9% YoY), largely driven by 10.3% QoQ growth in commercial and SME (corporate loan grew 3.9% QoQ; consumer 3.2% QoQ). This coupled with lower cost of funds in 2Q11 – as a result of record high CASA of 77% and reduction in savings rate done in 2Q11 – resulted in 8.7% QoQ expansion in net interest income and helped lift NIM despite margin pressure from higher reserves requirements. LDR inched up higher to 57% (1Q11: 56%; 2Q10: 53%) with management guiding gradual rise in LDR going forward. Gross NPL ratio stayed pristine at 0.7%; with LLC of 330%. Cost-to-income ratio for 1H11 rose to 48% HoH (1H10: 44%) but lower than 2H10’s 53%. CAR fell from 14.8% in 1Q11 to 13.9%.

Takeaways from management briefing. We sense that BCA is shifting into a more aggressive mode with management underlining asset expansion opportunities moving forward. Strong 2H11 pipeline of credit growth is seen especially in the corporate segment and we expect rising trajectory of LDR to continue and expect a positive outlook for NIMs. Management is set to continue pushing its mortgage business (now accounting for over 13% of loan book), to up its regional commercial and SME segment whereas its 2W financing is well underway.