Entering 2013 banks are more optimistic compared to in 4Q12, translating into 23.5% loan growth. However, with a more conservative stance on provisioning charges, we expect slower earnings growth of 13% on average in 2013. We assign a NEUTRAL stance on the industry with BBRI and BBNI on the larger banks and BJTM and BBTN on the smaller banks as our top picks.
Stronger loan growth in 2013. We expect average loan growth on our bank universe of 23.5% in 2013 compared with 22.7% in 2012. This is expected to come from investment or corporate loans and consumer loans, which have been supported by the rising middle income.
NIM to remain high at more than 6%. Average net interest margin on our bank universe is forecasted at 6.56% in 2013 and 6.50% in 2014. We do not see NIM to decline significantly in the medium term given the high cost of business operation in the country.
Asset quality at its best. Industry NPL level stood at 2.0% in January 2013, the lowest since the Asian crisis. This is supported by high coverage ratio of more than 150%. We do not expect any significant asset quality deterioration in the next two years. Nevertheless we expect a more conservative stance on provisioning charges which will limit earnings growth to 13% in 2013.
No Tier-1 capital raising. With average total CAR of 19.3% in January 2013 (17.% in our bank universe) we do not expect any Tier-1 capital raising in 2013-14. The average ROE is expected at 21.4% and 21.8% in 2013-14, a comfortable level for sustainable growth.
Valuation and stock picks. The banks are trading at 2.8x P/BV 2013F, 1STD above the mean valuation since 2004. We prefer BBRI and BBNI for the large banks and BJTM and BBTN for the smaller ones.
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