Friday, August 21, 2009
Why I Like Bumi-Commerce Bank
I rarely feature big companies as they tend to be sluggish and unexciting. I have been monitoring Bumiputra Commerce Bank for some time now. In 2006-2008, the company has had a transformation, they started to pay top dollar for talents. BCHB was becoming proactive and aggressive. Cynics would say its the government's banker - well, it is not easy to get that accolade or brickbat, whichever you want to refer that as. The markets have not been entirely persuaded by its sharp jumps in revenue and profits - analysts still see the company as largely an investment bank rather than a safe and solid banking operations. Investors somehow rather value solid and reliable consumer banking business more than what BCHB brings to the table.
Despite a more difficult 2008, its ROE is still very solid at 11.31% even though it recorded an unsustainable 17.56% in 2007 (an exuberant year). ROE is a critical measure to me in assessing how well they are deploying capital and putting them to work. Annualised 1HFY09 core net profit was RM2.58bn. The stronger-than-expected results were largely driven by an exceptionally strong earnings by CIMB Niaga (+65% q-o-q). Annualised core ROE came in at an estimated 14.5%, and as mentioned earlier, this is a critical measure. Take that together with their cost of equity at 9%-10% and you have a solid platform. Considering that the company aims to bring ROE for future years to at least 18%, that would certainly bring a premium to the underlying earnings.
How are you going to grow a RM38bn market cap company? The company is just doing what it is doing better, keep ROE high, manage capital deployment, invest well and turn them around quickly, keep the professional hiring policies and aggressive profit sharing motive, and RM50bn won't be far away at all.
On the domestic front, consumer banking was the main growth driver registering a y-o-y loans growth of 11.1% with mortgages being the top performer (+21.0% y-o-y) followed by trade lines and OD facility (+18.4% y-o-y).The group’s total gross NPL increased 2.2% q-o-q, with net NPL ratio declining to 2.4% from 2.5% in 1Q09. The increase in gross NPLs were largely attributed to lumpy loans granted to corporates operating out of the ASEAN region (Middle East), which attributed to nearly 70% of the increase in overall NPLs of close to RM251m q-o-q. Domestic asset quality remained intact, where gross NPLs actually declined 1.5% q-o-q. Stock trades at 12x 2010 P/E (versus local peers at 14-18x), 2x P/BV with 16% 2010E ROE. Roll all that, I see BCHB moving to the next level, no looking back now, say goodbye to RM10 a share.
Major Shareholders: Khazanah 28.0%, EPF 14.8. Just look at this equation. this is where I think the catalyst for the stock's next upswing will be. The company has proven itself, and its overseas acquisitions are doing well overall - it would be very silly for Khazanah and EPF to keep stakes at this level only. Coupled with the new FBM KLCI index, PNB will have to ramp up buying in order not to be left out of a critical outperformer of the index. I expect sustained buying.
This one can keep and hold.
p/s photo: Kathy Chow Mun Kei