Bank Tabungan Pensiunan Nasional at an attractive valuation

Bank Tabungan Pensiunan Nasional: At an attractive valuation  (BTPN; Rp4,775, Buy, TP:Rp5,500)

We reiterate our Buy call on BTPN, which is trading at 2.8x P/BV 2013F, after its share price declined 20% from the peak. The new shareholder, SMBC, is not likely to change the business model or the management, hence concentration will remain on the high-margin micro lending and pensioners.

Sumitomo Mitsui Banking Corporation (SMBC) to become major shareholder. SMBC has bought 24.3% of BTPN shares earlier this month and plans to increase its ownership to 40% if it gets approval from the central bank. The investment, which was done at Rp6,500 or 4.9x P/BV 2012, is long-term with no intention to increase the stake beyond the 40% limit stipulated by the existing regulation. TPG Nusantara still owns 41% (previously 57.9%) but will reduce it to 25.3% when SMBC realizes its additional purchase from the company.

No change in BTPN management.  Despite there is no agreement between the management and SMBC we understand that the current management will remain intact for the foreseeable future.  BTPN’s business model on micro lending (loan to pensioners 70% and micro loans 23%), the main factor for SMBC’s decision to buy, will be unchanged, hence we expect the bank to deliver high ROE of more than 25%. In the longer term SMBC may replicate such platform in other countries in the region.

Potential lower cost of funds. BTPN’s reliance on high-rate-bearing time deposits (84% of total deposits) and borrowings may change in the long term. SMCB's higher rating may help BTPN tap the bond market with lower cost of funds. This will help maintain the high margin.

Reiterate Buy. BTPN share price has underperformed the JCI by 30% this year after outperforming the market by 39% in 2012. We believe investors had taken profit learning that there would not be any tender offer post the acquisition. While we lowered our earnings forecasts by 7% for 2013 and 5% for 2014 due to the expected slower loan growth post the fuel price increase and higher corporate income tax rate of 25% we reiterate our BUY call on the bank  with the expected 26% average ROE in 2013-15. Consequently we also lowered TP to Rp5,500 from Rp5,600 based on 3.2x P/BV 2013F.

for Indonesia Market Summaries 31 May 2013