Company update:
(BMRI, Neutral, TP: IDR10,100)
Spring Has Not Come Yet
(BMRI, Neutral, TP: IDR10,100)
Spring Has Not Come Yet
As
Bank Mandiri’s dismal 1Q16 was due to significant provisions it made, we cut
our FY16 earnings estimate to IDR19.1trn (from IDR21.1trn), mainly due to the
longer period to recover asset quality. We expect the LLC ratio to stay at
144.2%, in line with management's guidance. In addition, we anticipate margin
to gradually fall due to a rebalanced loan book as it would focus more on
corporate lending – a segment offering lower loan yields. Maintain NEUTRAL with
a new TP of IDR10,100 (from IDR10,500, 6% upside), implying 1.8x 2016F P/BV.
¨ Asset quality to stay
under pressure this year. Bank Mandiri’s gross non-performing loans (NPL) ratio
rose to 3.2% in March (Dec 2015: 2.6%). This was mostly due to its clients
engaged in commodities-related sectors (eg coal contractors and coal
transportation providers), while commodity prices remained stagnant and total
loans grew 7.4% YoY. We still expect asset quality to stay pressured for
the next three quarters, given the bank’s substantial loan book of IDR564.7trn.
Thus, gross NPL would only improve to 3.1% by year-end as we also trim our FY16
loan growth target to 10.9%, in line with management’s revised loan growth
target of 10-12%.
¨ Maintain a sufficient
level of LLC.
As the pressure on asset quality may remain, management also emphasised that it
would maintain its loan loss coverage (LLC) ratio at above 140%. In 1Q16, its credit
cost shot up to 323bps, which brought its LLC ratio down to 131.1%. We estimate
its LLC ratio to be at 144.2% this year, along with a 235bps credit cost.
¨ Margin to be stable. We expect its net
interest margin (NIM) to be stable this year at 5.9%, due to a lower blended
cost of funds (CoF) of 3.2% which in turn would be offset by a sharp fall in
asset yield of 8.8%. For next year, we estimate its margin to gradually decline
by c.13bps as we expect its asset yield to come under further pressure due to
the bank rebalancing its loan book and focusing more on corporate lending – a
segment that offers lower loan yields.
¨ Expect negative
bottomline growth this year. With more conservative assumptions (a 144.2%
LLC ratio, 3.1% gross NPL ratio and 10.9% loan growth), we expect earnings to
decline 6.0% YoY to IDR19.1trn this year.
¨ In 2017, we expect
its earnings to recover by 9.6% YoY on the back of a pick-up in loan growth of
12.4% YoY and an improvement in asset quality.
¨ NEUTRAL. After Bank Mandiri
reported a disappointing 1Q16 due to significant provision, we adjusted some of
our key assumptions and derived a new TP of IDR10,100. Our new GGM-based TP
implies 1.8x 2016F P/BV (-0.5SD from its historical mean). Maintain NEUTRAL. (Eka Savitri)
Kindly click the following link for the full report: Bank Mandiri : Spring Has Not Come Yet
Best regards,
Eka Savitri
Vice President
Research Analyst - Banking
PT. RHB Securities
Indonesia
