Bank Mandiri (BMRI IJ) - One shot, two kills
3Q18 review: Meaningful asset yields hike
For 3Q18, Bank Mandiri (BMRI) reported net profit of IDR5,914bn (-6.4% QoQ, +5.5% YoY), beating the Bloomberg consensus (IDR5,500bn). Net profit growth was evenly driven by the revenue and cost side. On the revenue side, net interest income grew 5.7% YoY, largely driven by solid loan growth together with improving net interest margin (NIM). On the expense side, operating expenses (+3.3% YoY) were well-managed with higher efficiencies, while provisions also remained at a low level amid improving asset quality. Despite BMRI’s strong performance through 3Q18, we are more cautious on 4Q18 due to the unclear macro backdrop.
Operational highlights
Lending growth: BMRI’s loan growth came in at 13.0% YoY or 6.3% YTD, which is the fastest YTD growth since 3Q14. Loan growth was chiefly driven by corporate loans, which grew 28.7% YoY, followed by the micro segment (+26.5% YoY). For corporate loans, the top 10 industries saw loan growth in the double or even triple digits, with the mining/oil & gas sector making the largest contribution. In the micro segment, KSM (salary-based loans) and KUR continued to support loan growth (+37.5% and +40.5% YoY, respectively). We see the loan portfolio shifting to retail loans, backed by the micro segment.
Net interest margins: NIM came in at 5.54% (+18bps QoQ, -90bps YoY) in 3Q18. Despite a 50-75bp increase in the time deposit rate in 2018, NIM rose slightly due to increasing lending yields in 3Q18 for some segments (some only for new borrowers and others due to asset repricing). In 4Q18, we expect NIM to improve, albeit with small upside, due to 1) management’s conservative stance to avoid pricing competition, 2) high lending yield from new borrowers and 3) limited upside of cost of funds (satisfying TD rate and high CASA ratio).
Asset quality: In 3Q18, NPL formation fell 10bps QoQ and 70bps YoY to 3.1%. NPL fell across all segments on a yearly basis, while the QoQ improvement was mainly driven by retail. We believe asset quality improvement was largely driven by favorable commodity prices and tighter loan underwriting standards. Improving asset quality has helped provisions remain low and lowered credit cost (1.9% in 9M18 vs. 2.0-2.2% target in 2018). Despite the unclear economic outlook, we expect NPL ratio to remain at the current level given 1) favorable commodity prices and 2) the tightening credit process.
Maintain Trading Buy recommendation with target price of IDR7,640
We adjust up our FY18 earnings estimate by 2.1%, but maintain our target price of IDR7,640, reflecting a higher cost of capital. We expect BMRI’s top line to improve further thanks to improving NIM and solid loan growth, but at a slow pace, given the unclear macro backdrop. Our target price was derived by applying a target P/B multiple of 1.8x to our 12M rolling forward BPS estimate.
Mirae Asset Sekuritas Indonesia Company Update
Bank Mandiri (BMRI IJ) - One shot, two kills by Taye Shim (taye.shim@miraeasset.com) and Lee Young Jun (lee.youngjun@miraeasset.co.id)
Oct 18, 2018
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