Better assets quality improvement
Shinhan Sekuritas Indonesia
Bank Mandiri posted a decent earning in full year 2018. The net profit increased by 21%yoy to IDR25.015tn or slightly lower than our net profit estimation at IDR26tn or 96% of the estimation but remained acceptable. The net profit growth was underpinned by the modest interest income growth by 4.7%yoy to IDR80.9tn while the interest expense rose by 4.2% which resulted in the 4.9% growth of net interest income to IDR54.6tn. The NIM compression continued due to the higher policy rate and the sluggish adjustment of the loan yield which caused the NIM decreased to 5.4% from 5.8%. Amid the lower NIM environment, the company was able to increase the operational efficiency as seen on its cost to income ratio that felt by 119bps to 44.4% from 45.6%. The gradual business process transformation has made a positive impact on the operational efficiency which translated into the higher net profit. BMRI also registered higher fee base income. This contributed to reduce the negative impact from margin compression. The company posted 20.6%yoy increased in non-interest income to IDR28.443tn. Going forward, we expect the modest growth in the net profit in the range of 17% this year as the higher loan yield adjustment is possible to be executed.
Loan growth was buoyed by strong corporate loan growth. The total loan expanded by 5% while the corporate loan remains the back bone of the company loan which contributed 45.9% of the total loan and recorded higher growth by 21.9%yoy to IDR279tn. The highest loan growth came from micro loan that was up by 25.1%yoy to IDR91.4tn. It was in line with the company’s aiming to accelerate the consumer, micro and small medium enterprise segment contribution to 37% in 2020 from current level at 34%. This gradual transformation would provide better loan yield ahead as the company gradually shifting its loan portion to higher yield assets. The loan growth this year is expected at around 5% to 7% this year as the company would maintain its liquidity as seen in the LDR that currently at 97%.
The assets quality improves and the NPL decreased to 2.8% from 3.5%. The company claimed that the asset quality improvement was partly due to the effective credit risk analytics. The company running several roles in credit risk analytics through effective portfolio guideline, monitoring early warning and recalibrating all retail assets acquisition by enhancing credit risk tool. This has translated into lower cost of credit that reduced to 1.55% from 2% and lower provision charge by 11%yoy to IDR14.2tn.
Valuation. We consider maintaining the valuation on the back of the improvement of the assets quality and the gradual shifting to the higher yield segment. We set our target price based on our GGM calculation at IDR9,200 which implying the PBV at 1.6X and 1.4 for 2019F and 2020F respectively.
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