Bank Central Asia

Rp6,850 - OUTPERFORM
Bret Ginesky
bret.ginesky@clsa.com (62) 2125548827

Commercially Viable
Recent discussions with BCA management confirm that the bank remains aggressive in expanding its business. In 2011, the bank will focus on commercial / SME lending and increasing its electronic banking platform. Conservative management guidance of 16-20% loan growth should be attainable with no margin contraction in 2011 given the banks asset sensitive balance sheet. Unaudited 2010 results were solid as net income increased 23% to Rp8.3tn and 24% YoY loan growth.

Downgrade recommendation

Aggressive action making it rain in middle market lending

8 March 2011

Indonesia
Financial services
Reuters Bloomberg BBCA.JK BBCA IJ

Recent discussions with BCA management confirm that the bank remains aggressive in expanding its business. In 2011, the bank will focus on commercial / SME lending and increasing its electronic banking platform, as commercial / SME borrowers are becoming more transparent, providing more comprehensive audited financial results and represent a higher yielding lending segment.

Priced on 8 March 2011 Jakarta Comp @ 3,580.3

12M hi/lo

Bright Future 2011 guidance

Conservative management guidance of 16-20% loan growth should be attainable with no margin contraction in 2011 given BCAs asset sensitive balance sheet and costs increasing between 15-20%. The strategy to focus growth on middle market lending represents a shift in philosophy. Additionally, Electronic banking continues to develop with record daily transactions in ATM and internet banking being achieved in early 2011. Management intends to beef up its points of service by adding 1,500 new ATMs, 60,000 EDC machines and up to 40 new branches.

Rp7,200/4,825 Rp7,500 +9% 28 Oct 10 24,655.0m 52.9% US$19,220m

(US$11.6m)

12M price target % potential Target set on Shares in issue Free float (est.) Market cap

A look back at 2010

Unaudited 2010 results were solid as net income increased 23% to Rp8.3tn and loan growth was 25%. Unaudited BI results were net income rising 23% YoY to Rp8.3tn, NIM of 5.7% and 24% YoY loan growth. Expansion was

3M average daily volume

Rp103.7bn

Major shareholders

Farindo Investments Ltd. 47.2%

driven by the consumer segment, particularly mortgages which rose by over 40% YoY, while CASA funding increased to 76% of total deposits. Lowering Rating to Outperform and TP Rp7,500

Stock performance (%)

Absolute Relative Abs (US$)
7,700 6,700 5,700 4,700 3,700 2,700 M ar-09 0 Sep-09 M ar-10 Sep-10 100

1M 14.2 10.3 15.9

3M 2.2 7.7 4.9

(%)

12M 35.6 (0.5) 41.6

150

We are lowering our rating to Outperform from Buy and lowering our TP to Rp7,500 from Rp8,000, representing a 9% upside. Our estimate remains 5% and 7% ahead of consensus for 11CL/12CL, respectively. Our target price reflects a PE ratio 18.5x, reflecting the banks liquidity, deposit franchise premium and forecast for compounded three year earnings growth of 20%. Financials
Year to 31 Dec Operating profit (Rpbn) Net profit (Rpbn) EPS (Rp) CL/consensus (23) (EPS%) EPS growth (% YoY) PE (x) Dividend yield (%) PB (x) ROE (%) CAR (%) ROA (%)
Source: CLSA Asia-Pacific Markets

(Rp)

50

Bank Central Asia (LHS) Rel to Comp (RHS)

Source: Bloomberg

08A 7,668 5,776 235.42 29.0 29.1 0.9 7.2 26.4 15.8 2.5

09A 8,473 6,761 276.25 17.3 24.8 1.6 6.0 26.4 18.7 2.4

10CL 10,746 8,553 349.44 103 26.5 19.6 1.8 5.0 27.9 19.3 2.9

11CL 12,311 9,912 405.00 105 15.9 16.9 2.3 4.3 27.2 19.0 3.0

12CL 14,599 11,743 479.80 107 18.5 14.3 2.7 3.6 27.3 18.6 3.1

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Commercially Viable Action

Bank Central Asia OutperformO-PF

Aggressive action making it rain in middle market lending

Shifting focus to Commercial/SME lending

We recently had a discussion with BCAs President Commissioner Eugene Galbraith to discuss the bank and its outlook for 2011. Our discussion confirms that the bank remains aggressive in expanding its business despite the inflationary concerns. In 2011, the bank will focus on commercial / SME lending and increasing its electronic banking platform, as commercial / SME borrowers are becoming more transparent, providing more comprehensive audited financial results and represent a higher yielding lending segment. Management noted that in the past BCA may have been too conservative in this segment. Historically, transparency was a challenge in the middle market segment, but improved audited results and the strong growth of this segment is increasing transparency and banking opportunities.

Figure 1

Figure 2

Loan Breakdown - 2010

Cons. 24%

Loan Breakdown Guidance 2011

C ons. 24%

Corp. 37%

C orp. 35%

Comm./SME 39%

C omm./SME 41%

Source: CLSA Asia-Pacific Markets, Company Guidance

Source: CLSA Asia-Pacific Markets, Company Guidance

Bright Future 2011 guidance

BCAs 2011 Guidance Asset Growth Loan Growth CASA Ratio CAR NIM Operating Expenses New Branches New ATM's New EDC's
Source: CLSA Asia-Pacific Markets, Company

2011 Guidance 16-20% 16-20% 73% 13.80% 5.6-5.7% 15-20% 30-40 1,500 60,000

Conservative guidance should be exceeded

Conservative management guidance of 16-20% loan growth should be attainable with no margin contraction in 2011 given BCAs asset sensitive balance sheet and costs increasing between 15-20%. The strategy to focus growth on middle market lending represents a shift in philosophy. Additionally, Electronic banking continues to develop with record daily transactions in ATM and internet banking being achieved in early 2011. Management intends to beef up its points of service by adding 1,500 new ATMs, 60,000 EDC machines and up to 40 new branches.

8 March 2011

bret.ginesky@clsa.com

Commercially Viable Action

Bank Central Asia OutperformO-PF

BCA continues to lower its exposure to the telecommunications industry as the business is getting too competitive along with distribution and infrastructure concerns. In 2011, the bank will focus on lending to commodity firms (coal, CPO), retailers, and automotive industries. Electronic banking continues to strengthen in 2011. The bank had its best day for internet transactions in January with 1.3m transactions completed in one day. In addition, for ATM's the banks best day in 2010 was 2.5m transactions while in early 2011 BCA reported 3.3m transactions in one day.
Figure 3 Figure 4

Most internet transactions one day

1,400 1,300 1,200 1,100 1,000 900 800 700 2010 2011 YTD Thousands 45% increase in transactions

Most ATM transactions one day

3,500 3,250 3,000 2,750 2,500 2,250 2,000 2010 2011 YTD 32% increase in transactions Thousands

Source: CLSA Asia-Pacific Markets, Company

Source: CLSA Asia-Pacific Market, Company

Concerns and risks remain as the regulatory environment from BI remains hawkish. BCA plans to monitor the impact of displaying their lowest lending rate for "risk free" borrowers on its lending relationships as it expects some headwinds from customers regarding the publicly displayed rates. While BCA does not anticipate infrastructure being a 2011 story, management noted that if property ownership were opened up to foreigners that BCA could become aggressive in lending for non-landed housing.

Unaudited 2010 net income of Rp8.3tn and 24% loan growth

A look back at 2010

Unaudited 2010 results were solid as net income increased 23% to Rp8.3tn and loan growth was 25%. Unaudited BI results were net income rising 23% YoY to Rp8.3tn, NIM of 5.7% and 24% YoY loan growth. Expansion was

driven by the consumer segment, particularly mortgages which rose by over 40% YoY, while CASA funding increased to 76% of total deposits.

8 March 2011

bret.ginesky@clsa.com

Commercially Viable Action

Bank Central Asia OutperformO-PF

Figure 5

Loan Growth 2010 - Unaudited

28 25 22 19 16 13 10

% 24.6 24.0

19.4 17.3 16.5 14.7 13.0

BBC A

BDMN

BTN

BBRI

Jabar

BMRI

BBNI

Source: CLSA Asia-Pacific Markets

BCA expects to see more pressure on rates from the lending side, not the deposit side (given BCA's lower cost funding structure). Moreover, management did not believe a deposit pricing war was occurring in Indonesia, while noting that competition is picking up and offering premium rates to larger clients along with vouchers. BCA has increased its CASA ratio YoY and currently has a 1600bp edge over its nearest competitor in low cost funding.
Figure 6

CASA Ratio - 2010 Unaudited

80.0 % 75.0 70.0 65.0 60.0 55.0 50.0 45.0 40.0 35.0 30.0 BBC A BBRI BBNI BMRI BDMN Jabar BTN
Source: CLSA Asia-Pacific Markets

BCA Finance continues to report solid results in auto lending (new and used). Overall at the subsidiary we anticipate reported earnings could rise by 30% or more in 2010 when reported. The motorcycle lending business remains small as BCA financed about 15,000 two wheelers by year end. The primary locations BCA has targeted for motorcycle lending is greater Jakarta, Surabaya, Semarang, and Medan.
Lowering to Outperform and lowering TP to Rp7,500

Lowering to Outperform and TP Rp7,500

We are lowering our rating to Outperform from Buy and lowering our TP to Rp7,500 from Rp8,000, representing a 9% upside. Shares have appreciated

8 March 2011

bret.ginesky@clsa.com

Commercially Viable Action

Bank Central Asia OutperformO-PF

by 8% since we upgraded to Buy in December, outperforming all Indonesian peers aside from Bank Danamon in that time period. Our estimate remains 5% and 7% ahead of consensus for 11CL/12CL, respectively. Our target price reflects a PE ratio 18.5x, reflecting the banks liquidity, deposit franchise premium and forecast for compounded three year earnings growth of 20%.
Figure 7

Bank Performance since Dec. 27, 2010

20 15 10 5 0 -5 -10 -15 -20 -25

BDMN

BBC A

BBNI

BBRI

BMRI

BTN

Jabar

Source: CLSA Asia-Pacific Markets

8 March 2011

bret.ginesky@clsa.com

Commercially Viable Action

Bank Central Asia OutperformO-PF

Indonesian Banking Matrix Bank Central Asia BBCA IJ 19,220 49% 9,418 2009 2010CL 2011CL 2012CL 2009 2010 2011 2012 2009 2010 2011 2012 2009 2010 2011 2012 2009 2010 2011 2009 2010 2011 2012 2009 2010 2011 2009 2010 2011 653 942 1,128 1,336 5.4 5.0 4.3 3.6 22.1 19.6 16.9 14.3 17.34 26.49 15.90 18.47 19,202 21,224 24,375 44.1% 48.3% 48.1% 47.6% 48.8% 50.3% 53.1% 2.4 2.9 3.0 Bank Negara Indonesia BBNI IJ 8,065 24% 1,936 240 401 552 718 2.7 2.8 2.2 2.1 21.2 15.9 13.3 11.2 103.77 46.78 19.77 18.20 15,428 17,122 19,113 51.8% 64.2% 49.3% 46.0% 60.4% 58.8% 59.6% 1.1 1.5 1.8

Indonesian Bank

Bank Rakyat Bank Mandiri Indonesia BBRI IJ 14,458 42% 6,073 705 1,029 1,286 1,572 4.2 3.7 3.0 2.2 15.6 13.5 11.2 9.1 22.65 27.83 21.02 22.22 26,318 30,490 35,494 45.4% 45.6% 45.2% 43.4% 75.6% 79.0% 81.1% 2.2 2.7 2.8 BMRI IJ 16,995 32% 5,438 691 1,008 1,182 1,324 3.4 3.2 2.8 2.4 16.4 14.7 13.0 11.6 34.03 27.45 13.55 12.00 22,440 26,218 31,337 44.6% 41.9% 37.8% 37.3% 57.8% 65.8% 73.9% 1.8 2.2 2.2

Bank Bank BTN Danamon BDMN IJ 6,227 32% 1,993 194 327 408 478 3.3 3.1 2.8 2.5 20.5 18.4 15.2 13.0 -0.62 17.67 20.79 17.14 11,300 12,137 14,070 46.9% 50.2% 47.5% 46.1% 86.4% 90.6% 97.9% 2.3 3.0 3.2 BBTN IJ 1,486 28% 416 36 92 141 186 2.1 2.1 1.8 1.6 30.1 15.6 10.5 7.9 -68.27 122.71 48.83 32.06 2,435 3,644 4,774 72.4% 58.7% 55.3% 54.4% 99.5% 99.7% 108.6% 0.7 1.3 1.6

Bank Jabar BJBR IJ 1,291 25% 323 68 117 154 173 2.3 2.5 2.2 1.9 9.7 8.8 8.4 7.5 17.1 15.5 5.1 12.3 2,362 3,075 3,665 52.6% 43.0% 39.1% 37.4% 78.0% 81.9% 85.0% 2.3 2.8 3.0

Bloomberg Market cap (US$m) Free float (%) FF Mcap (US$m) Net profit (US$m)

PBV(x)

PER (x)

EPS growth (%)

Operating Income

Efficiency Ratio

LDR(%)

ROA(%)

Current Price (Rp/share) Target Price Upside (%)

6,850 7,500 9%

5,150 5,350 4%

6,400 7,000 9%

3,800 4,500 18%

6,500 7,000 8%

1,490 2,400 61%

1,170 2,000 71%

Source: CLSA Asia-Pacific Markets

8 March 2011

bret.ginesky@clsa.com

Commercially Viable Action

Bank Central Asia OutperformO-PF

Summary financials
Year to 31 December 2008A 2009A 22,080 (8,029) 14,051 3,610 1,541 5,151 19,202 (4,187) (4,285) (8,471) 10,731 (2,258) 426 8,899 (2,138) 6,761 0 0 6,761 119,596 17,163 8,865 112,057 261,987 2,971 0 17,434 282,392 245,140 2,489 1,156 248,785 5,751 254,536 27,857 0 282,392 8.7 50.0 48.8 6.0 20.3 12.1 18.8 24.4 3.2 44.1 3.6 0.7 481.1 24.0 17.1 18.2 18.7 2.4 26.4 2010CL 21,326 (7,545) 13,781 4,642 1,601 7,444 21,224 (4,792) (5,461) (10,252) 10,972 (226) 80 10,826 (2,273) 8,553 0 0 8,553 148,005 17,163 8,865 99,735 278,161 3,060 0 20,668 301,890 294,168 2,489 (33,884) 262,772 5,751 268,523 33,367 0 301,890 23.8 51.4 50.3 5.3 (1.9) 28.6 21.9 21.0 3.5 48.3 3.0 0.9 320.2 21.0 26.5 18.7 19.3 2.9 27.9 2011CL 24,079 (9,023) 15,057 6,151 1,667 9,319 24,375 (5,367) (6,359) (11,726) 12,649 (339) 80 12,391 (2,478) 9,912 0 0 9,912 185,938 17,163 8,865 99,689 316,215 3,152 0 45,153 364,521 350,060 2,489 (33,209) 319,340 5,751 325,090 39,431 0 364,521 25.6 54.0 53.1 5.3 9.3 32.5 25.2 14.4 3.5 48.1 2.5 1.1 233.2 20.0 15.9 18.2 19.0 3.0 27.2 2012CL 27,670 (10,753) 16,917 8,161 1,740 11,701 28,618 (6,016) (7,596) (13,612) 15,005 (406) 80 14,679 (2,936) 11,743 0 0 11,743 233,370 17,163 8,865 100,994 365,145 3,247 0 26,429 394,821 416,571 2,489 (76,703) 342,357 5,751 348,108 46,713 0 394,821 25.5 56.8 56.0 5.1 12.4 32.7 28.5 16.1 3.6 47.6 2.0 1.2 165.5 20.0 18.5 17.7 18.6 3.1 27.3 Summary P&L forecast (Rpbn) Interest income 18,616 Interest expense (6,940) Net interest income 11,676 Fee income 3,219 Other operating income 1,338 Non-interest income 4,543 Total op income 16,219 Staff & related costs (3,284) Other operating expenses (3,526) Total operating expenses (6,810) Preprovision OP 9,409 Loan-loss provisions (1,741) Other income/expenses 52 Profit before tax 7,720 Taxation (1,944) Profit for period 5,776 Minority interest 0 Preference dividends 0 Net profit 5,776 Summary balance sheet forecast (Rpbn) Net loans & advances 110,027 Placements to other banks 12,846 Cash & equivalents 10,799 Other int-earning assets 91,276 Total int-earning assets 227,705 Fixed assets 2,645 Intangible assets 0 Other assets 15,220 Total assets 245,570 Customer deposits 209,529 Deposits from banks 4,048 Other int-bearing liabs 1,034 Total int-bearing liabs 214,611 Other non-int-bearing liabs 7,680 Total liabilities 222,291 Shareholder funds 23,279 Minorities/other equity 0 Total liabs & equity 245,570 Ratio analysis Loan growth (%) Loans/deposits (%) Reported Loans/deposits (%) Net interest margin (%) Net int inc growth (%) Fee income growth (%) Fees & comms/op inc (x) Operating exp growth (%) Op expenses/assets (%) Cost/income (%) Loan provisions/loans (%) Gross NPLs/total loans (%) Loan loss reserve/NPLs (%) Effective tax rate (%) Net profit growth (% YoY) Tier 1 CAR (%) CAR (%) ROA (%) ROE (%)
Source: CLSA Asia-Pacific Markets

36.3 52.8 52.5 5.9 29.3 27.4 19.9 15.7 2.9 42.0 2.5 0.6 408.5 25.2 28.7 15.3 15.8 2.5 26.4

8 March 2011

bret.ginesky@clsa.com

Commercially Viable Action

Bank Central Asia OutperformO-PF

Recommendation history - Bank Central Asia BBCA IJ Date 27 December 2010 28 October 2010 02 August 2010 09 November 2009 08 October 2009 30 April 2009
Source: CLSA Asia-Pacific Markets

Rec level BUY O-PF O-PF BUY U-PF U-PF

Closing price 6,350.00 7,000.00 5,950.00 4,725.00 4,925.00 3,325.00

Target 8,000.00 8,000.00 6,000.00 6,000.00 5,000.00 2,800.00

Key to CLSA investment rankings: BUY = Expected to outperform the local market by >10%; O-PF = Expected to outperform the local market by 0-10%; U-PF = Expected to underperform the local market by 0-10%; SELL = Expected to underperform the local market by >10%. Performance is defined as 12-month total return (including dividends). 2011 CLSA Asia-Pacific Markets (CLSA). Note: In the interests of timeliness, this document has not been edited.

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8 March 2011

bret.ginesky@clsa.com