Look Chart 1 from Morgan Stanley (MS) update below. BBCA rally is already far overdone at Rp7.700, and this explains why on late session of Friday a few institutional buyers racing BBCA price to the top for nothing but a fast selling plan at lower price, expecting less informed buyers in coming sessions. False price hike may lead less informed and unsophisticated buyers to think that following decline will be similar to price bargain, which is actually not at all as the price has already been inflated somehow.
No fundamental changes multiplying net profits made it a case different from Q1. *MS notes*: *BCA (EW)*, at 18x 2011e P/E, in our view, is fully valued for its fundamentally solid franchise. BCA is a well-run bank with pristine credit quality (NPL ratio at 0.64%). The lower ROAE and margins are reflective of a business that is skewed towards lower yielding corporate lending. BCA, as a strong liability franchise, has 77% of its total deposit balances in low-cost CASA. However, it is this particular liability franchise that is also posing a challenge for the bank as the sector transits into a lower interest rate environment. BCA has traditionally made money from placing its low-cost deposits in higher yielding SBIs/SBNs. A lower interest rate environment has begun to hurt this source of income as shown in Exhibit 12. What used to be a situation where deposit income could more than comfortably cover operating costs is no longer the case. We still think risks for BCA are skewed more to the downside than upside and maintain our Equal-weight/Neutral rating on the stock. Chart 1: [image: MS BBCA Valuation Update (July 2011).gif] '+'
<<MS BBCA Valuation Update (July 2011).gif>>
