Banks
Virtuous circle
The improved macro outlook, with falling inflation and interest rates, should spur
further  economic  activity  and  support  interest-sensitive  stocks  like  banks.  As
such, we double our loan-growth forecast for 2009. We see Mandiri (our top pick)
and BRI as key beneficiaries, but are more cautious on Danamon and BCA.
Table 1 : Key recommendation and forecasts
       P/E  P/B  Yield
  Rating  TP  Up/downside  2009F 2010F  2009F 2010F  2009F  2010F
BCA Hold 3700 8.0% 13.4 12.6 3.1 2.7 3.3% 3.4%
Danamon Hold 4000 0.0% 13.6 14.4 2.1 1.9 3.7% 3.5%
Mandiri Buy 4000 22.1% 12.7 10.0 2.2 1.9 2.8% 3.5%
Bank Rakyat Buy 7600 18.8% 11.1 9.3 3.0 2.5 3.2% 3.9%
Priced at close of business 1 Jun 2009.
Source: Bloomberg, RBS forecasts
Macro fears give way to optimism  
We believe Indonesia is likely to deliver GDP growth rates that are among the highest in Asia
this year and next (3.1% and 5.0% respectively), driven by a cocktail of accommodative
monetary policy, government stimulus and an uptick in domestic demand. Inflation continues
to fall (6.04% in May 2009, down 50% from its peak of 12.1% in September 2008). Foreign
reserves are rising and the trade surplus remains positive. The only potential area of concern
is rising oil prices, which could again put pressure on the budget.
Cost of capital is falling  
Indonesia seems to be entering a sustainable low interest rate cycle that could last at least
until 2010, in our view. The benchmark Bank Indonesia (BI) rate peaked at 9.5% in October
2008, and RBS expects it to fall to 6.5% in the months ahead and to stay there through to
2010. Meanwhile, long rates are declining, with the benchmark 10-year government yield
having more than halved since October 2008 to 10.35%. The decline in the cost of capital
should be positive for Indonesian equities (as it has been in previous periods of low interest
rates), especially for interest-rate-sensitive stocks such as banks.
We double our loan-growth forecast  
We increase our FY09 system loan-growth forecast to 17% (from 8.5%), given the improved
macro outlook. Although loans through to March 2009 have been flat versus December
2008, recent comments by Bank Indonesia and individual banks suggest loan demand is
picking up. We expect growth to be driven by domestic-focused MSME lending, but
corporate lending should also pick up, especially in the resources sector.
Mandiri and BRI are our preferred picks
Mandiri (Buy, Rp4000 target price) is our top pick, given we forecast asset-quality
improvement in 2H09 and strong loan growth (17% in FY09F and 20% in FY10F), and given
its relatively low valuation (2.2x 2009F PB, a 21.7% discount to peers). We also like BRI
(Buy, Rp7600 target price) for its micro lending (20% loan growth in both FY09F and FY10F)
and because we expect it to benefit from the falling interest rate. We are more cautious on
Danamon (Hold, Rp4,000 target price) and BCA (Hold, Rp3,700 target price).
Contents
Macro fears give way to optimism 3
We believe Indonesia is set to deliver GDP growth rates that are among the highest
in Asia for 2009 and 2010. Inflation is low and looks likely to fall further, the central
bank has an accommodative policy stance, while the external financing position
continues to improve.
3
GDP growth better than expected 3
Inflation is under control, thus leading rates lower 5
External financing position improves 6
What could spoil the party? 8
Cost of capital falling 10
Falling inflation is spurring lower interest rates, which in turn should drive down the
cost of capital and support equities.
10
Durable low interest rate cycle 10
Reduced cost of capital should support equities 11
Operating conditions are improving 12
We raise our loan-growth forecasts across the board, on the back of the improved
macro outlook. We also believe that lower interest rates could be margin-positive for
some banks.
12
Upside to loan growth 12
Mixed results on margins 13
Dashboards 16
The tables in this section contain our key forecasts and assumptions for Indonesian
banks.
16
Company profiles 23
Bank Central Asia 24
Bank Danamon 38
Bank Mandiri 49
Bank Rakyat 59
2