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Bank Jatim Equity Research position December 19, 2012 by Mandiri Sekuritas

Rabu, 19 Desember 2012 | 14:52 WIB

Bank Jatim reported 9M12 results with net profit of Rp528bn, -24% YoY, accounting for 58% of our full year forecast. The
financial data is being reviewed with the limited review version to be out before the end of the month.
  • While the cumulative net profit was below our expectation, there is improvement in 3Q12 net profit of Rp194bn, +66% qq and -32% y-y. This came from improved NIM, which was then offset by persistently high provisioning charges and higher operating expenses.
  • Loan growth was 18% y-y, 4.7% q-q to Rp18.7tn with SME loans posted the highest growth of 33% y-y followed by commercial loans at 24% y-y and consumer loans at 12% y-y. Loans breakdown is consumer at 60%, commercial at 21% and SME loans 19%.
  • Net interest margin increased to 8.0% in 3Q12 from 6.2% in 2Q12 on rising yield from the multipurpose loans (part ofconsumer loans). On the cumulative basis, however, NIM declined to 7.4% in 9M12 from 9.1% in 9M11, which we believe is a more reasonable level and not so much different from the industry level. The rising NPL is also one factor that led to the lower NIM.
  • Total consolidated NPL (commercial and sharia loans) increased to 2.7% in September from 2.6% in June 2012, mainly came from the government-sponsored KUR (which is part of the SME loans) whose NPL increased to 9.1% in September from 7.6% in June. As already discussed in 2Q12 results, NPL in Keppres loans and syndicated loans (both are part of the commercial loans) remained high at 9.75% and 13.49%, respectively, though the nominal value on Keppres loans declined.
  • Given the high problem loans in KUR the bank has been very selective in giving out new loans until they can reduce the NPL level towards 3% before starting disbursing KUR again. As 70% of the loss is covered by the government insurance companies, the bank has been receiving loan loss recovery on these loans at around Rp10bn per month. On Keppres loans the management is confident that they can recover 80% of the loss, which are expected to materialize in 2013. As for the syndicated loans, the recovery will depend on the efforts from other 15 banks involved but we do not expect such a high recovery rate. The main bad debts in Keppres and syndicated loans have been fully provided for. In addition to the increasing NPL, which affected the NIM, the bank also incurred high operating expenses in 3Q12, partly due to the one-off annual bonus in 3Q as well as IPO expenses. Cost to income ratio was recorded at 44% in 3Q12 and 41% in 9M12 compared to 40% in 9M11.
  • While we do not expect more provisioning and other expenses for the Keppres and syndicated loans in 4Q12, we may see further problem loans rising on KUR as the bank has stopped lending leading to continued high provisioning charges. Starting in mid-2010 problem loans in KUR have started to surface after 1-2 years post the disbursement.
  • Going forward, the earnings will depend on ability to get new civil servant customers, loan loss recovery and cost control. More details on operating data pending the results announcement.
We will be reviewing our numbers and call on the stock but based on the current projection the counter is trading at P/BV of 1.0x for 2012 and 0.9x for 2013
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