MANDIRI SEKURITAS INVESTOR’S DIGEST
BJTM: Small but beautiful (BJTM, Rp 425, Buy, TP: Rp 580)
· Being among the top five in terms of lending and deposit taking in the region of East Java, PT Bank Pembangunan Daerah Jawa Timur Tbk (Bank Jatim) was established in 1961 and earned its foreign exchange bank status in 1990. Compared with the nine listed banks which are closely followed by the market, the bank ranks top quartile in profitability (as measured by RoE, loan yield, and NIM), top quartile in terms of loan quality (NPL), and top quartile in terms of efficiency (operating cost-to-operating income). Post-IPO, the bank will become top quartile in terms of balance sheet backing, as measured by capital adequacy (CAR) and other financial leverage ratios.
· Low risk loan portfolio, with NPL below 1% in the last eight years. Payroll loans to civil servants, government-subsidized micro loans, and government-related medium and corporate loans account for about 83% of loan portfolio as of end-2011. The payroll loan is the bank’s single most important loan product to date, accounting for 59% of its loan portfolio.
· Strong local brand and loyal customers. The bank has been managing civil servant payroll for the regional government of East Java since its establishment, which by end-2011 has grown to more than 450 thousand accounts. The bank has also earned its reputation as the lender of choice for certain groups of borrowers, by participating in a number of government subsidized loan programs.
· Upside from the higher profile, transparency, and growth ambition by being a publicly listed bank. Few people would understand how low the risk of Bank Jatim’s loan portfolio actually is, and how efficient the bank is, had the bank not gone for its IPO. While keeping its focus on safety and profitability, we anticipate the management will up the ante on growth targets, leveraging on its strong local brand, loyal customer base, and deep local presence.
· Bad news on fraud related provisions out of the way, buy BJTM on FY13F outlook and valuation. The newly announced 2Q12 net profit fell by 31% QoQ and 20% YoY, on the back of Rp94bn one-off provision expense, which is already anticipated at the time of IPO. We initiate coverage on BJTM with a Buy rating and Rp580(36% upside) price target, based on 8.5x PER, 1.4x PBV, and 6.2% dividend yield on FY13F.
GDP 2Q12 preview : Moderating growth on external factor
- The statistics bureau will announce 2Q12 GDP growth data on Monday, 6th June. We expect economic growth to have accelerated to 2.52% qoq in 2Q12, while the on-year growth likely slowed marginally to 6.06% yoy in 2Q12 from 6.31% in 1Q12. Domestic demand likely remained as the driver of the economic growth, while the impact of the global economic slowdown is getting severer.
- Specifically, consumption activity among the middle-income class was relatively resilient yet consumption of lower income consumers may have slowed down as inflationary pressure, especially food inflation, mounted. On the other hand, exports continued to deteriorate due to global economic turmoil while imports remained firm due to investment activities.
- Nevertheless, the bright side is investment activities remained upbeat fueled by robust FDI and cheaper banking financing costs. From the production side, we see un-tradable sector likely continued growing healthily, led by trade and communications sectors, while manufacturing held up well, although headwind from falling external demand. Deeper slow down is expected to be seen in the mining sector as declining commodities prices and government regulation in banning raw mineral exports may have discouraged the sector output.