KI: PNBN - 1H14 Result Update - Being Cautious

BANK PAN INDONESIA – TP 950 (HOLD)

Being Cautious



Management is confident with liquidity

During our latest company visit, PNBN’s management stressed its confidence on the bank’s liquidity condition albeit as of the end of 1H14 the bank’s LDR was already at 91.4%, an increased from 89.1% a quarter earlier. PNBN itself has decreased its time deposit rate by 25 bps from 8.25% to 8%, not worrying about the deposit rate price competition that is still happening in smaller banks. As of end of 1H14, PNBN still had a solid CASA ratio of 64%, decreasing slightly from 65% at the end of 1Q14.



Maintaining asset quality with caution

As time deposit rate decreases, the bank is also starting to bring down its lending rates gradually. Mortgage lending rate and commercial lending rate has been cut by 100 bps and 80 bps, respectively, to 12.0% and 10.0%. The decision was taken not only because the bank wanted to maintain its market share but it was also because the bank cautious approach to maintain its asset quality in the back of the country’s weaker economic growth. Besides decreasing the lending rate, the bank’s management also put more stringent criteria for loans disbursement to customers.



1H14 results snapshots

Bank Pan Indonesia (PNBN) recorded a 20.4% yoy increase of net income to Rp1.5 tn in 1H14. The net income number was within our expectation (52% of our FY14 estimate). On a quarterly basis, net income increased by 13.3% from Rp723 bn to Rp819 bn. However, the increase of bottom line was not backed by solid increase of net interest income as net interest income only rose by 0.6% yoy to Rp2.96 tn from Rp2.94 tn a year earlier although on a quarterly basis net interest income rose 8.2% yoy from Rp1.4 tn in 1Q14 to Rp1.5tn in 2Q14. The bottom line performance was mainly due to the increase of other operating income from trading activities (bonds and currencies) and the substantial increase of non operating income that one cannot treat as recurring incomes. During the same period, PNBN’s loan book grew 14.4% yoy to Rp118 tn and deposit grew 13.4% yoy to Rp122 tn.



Maintain HOLD and increase target price to Rp950/share

We maintain our HOLD recommendation and increase our target price to Rp950/share as we roll out our valuation basis to 2015 but decrease or sustainable ROE assumption Our calculation is based on 14% sustainable ROEand 14.9% cost of equity, implying PBV 2015 of 0.9x.

*Source KI Research Department