A meeting with Bank Central Asia Tbk Pt (BBCA IJ) management in Jakarta provided an enlightening experience, with a much more positive sentiment than expected. The bank is not normally in the habit of getting over-exuberant about things but dare I say, "this time was different", in true BCA fashion anyway. This is not a comment on the results but the numbers came out yesterday and confirmed a more vibrant finish to the year.
Bank Central Asia Tbk Pt (BBCA IJ) had a strong finish to 2016, with a significant boost coming on the funding side related to inflows related to the Tax Amnesty. Loan growth remained somewhat insipid apart from flurries of activity in July and December.
The bank is very positive on the outlook for mortgages and is very focused on this business, concentrating on the secondary market and on the middle to upper classes. BCA is offering some very attractive deals for mortgages to its customers.
The company is very comfortable with its funding position, with a loan to deposit ratio of 74%-75%. It will offer good rates for time deposits of Rp2bn and above but rates are still below the market. Funding for the sector as a whole look quite tight with the LDR at 90-91%.
Higher interest rates would be positive for BCA, given that 75% of its loans are on variable rates. The bank is budgeting 10% loan growth for 2017.
The bank is quite comfortable on loan quality, with a current NPL ratio of 1.4%. It sees a very worst case of 2% but has a coverage ratio of 200%.
Bank Central Asia Tbk Pt (BBCA IJ) remains the best quality of the Indonesian banks but does trade at a premium as a result. It's a well-managed proxy for consumption and the health of the overall economy, with quality exposure to mortgages and nearly 40% of the transaction business in Indonesia. According to Bloomberg consensus, the bank is trading on 15.5x PER for FY18E and 12.5x FY19E, with forecast EPS growth of +10.6% and +23.6% respectively. It trades on 3.1x FY17 Price/book ratio with an ROE of 18.2%, which seems like a reasonable price, especially given management quality.
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