Company update:
Bank Mandiri (BMRI IJ, Neutrals, TP: IDR11,600)
Waiting For The Improvements To Come
Bank Mandiri (BMRI IJ, Neutrals, TP: IDR11,600)
Waiting For The Improvements To Come
We
reiterate our NEUTRAL call and GGM-derived IDR11,600 TP (3% upside) on Mandiri
because we believe the share price performance remains capped by investor
concerns over asset quality improvements. Additionally, its strategy to push
consumer lending as its main growth engine, aside from the corporate segment,
is also challenging. This is as other banks are more aggressive in offering
attractive lending rates and with faster approval times. As such, we expect
consumer lending to grow by 8.8%, ie below our 12.4% total loans growth
projection for this year.
¨ NPLs remain the main
concern, given
Bank Mandiri’s (Mandiri) substantial loan book size. Nov 2016’s monthly
provisions of IDR2.5trn (11M16 total provisions: IDR18.9trn) also suggest that
Mandiri is still at an internal consolidation phase and needs more time for
asset quality improvements. All in, we forecast anLLC ratio of 140.9% by
end-2017, which should provide an ample buffer if the NPL ratio is higher than
our 3.1% forecast.
¨ A challenging landscape
to grow consumer lending, in our view. This is despite the regulators relax their
policies (ie lower down payments and policy rate cuts totalling 150bps) and the
Government’s ongoing tax amnesty programme. For vehicle ownership loans,
Mandiri faces close competition with other banks and multi-finance firms like
Bank Central Asia (BCA) (BBCA IJ, NEUTRAL, TP: IDR17,600) and Adira Dinamika
Multi Finance (Adira Finance) (ADMF IJ, NR). The mortgage segment is also a
tough market, given peers like Bank CIMB Niaga (CIMB Niaga) (BNGA IJ, NR) and
Bank Permata’s (BNLI IJ, NR) aggressive strategies that include lower lending
rates and faster approval processes. As such, we expect Mandiri’s consumer
lending to grow by 8.8%, ie below our total loans growth of 12.4% for this
year.
¨ High magnitude from wholesale depositors. With a 3.3% cost of
deposits in 3Q16 (3Q15: 4%) – and a relatively stable customer deposits
breakdown between the wholesale and retail segments – we opine that wholesale
depositors still have higher bargaining positions when it comes to preferential
rates. Furthermore, the time deposit (TD) composition between retail and
wholesale is also quite stable. This indicates the stickiness of Mandiri’s
wholesale TD rate amid the tight liquidity situation within the system. All in,
we project 3% cost of deposits for FY17 (FY16: 3.4%).
¨ Maintain NEUTRAL and
a IDR11,600 TP. We
maintain our NEUTRAL call and GGM-derived IDR11,600 TP on Mandiri. This
assumes:
i. 9.3% cost of equity
(CoE);
ii. 12.9% sustainable
ROAE;
iii. 3% long-term growth.
Our
TP implies 1.6x 2017F P/BV, ie below -0.75SD from its historical mean). The
upside and downside risks to our call are a higher number of government
infrastructure projects, a lower-than-expected blended cost of funds (CoF),
slower-than-expected assets quality improvement and soft GDP growth that would
dampen loans demand, particularly for corporate lending.
Kindly click the following link for the full report: Bank Mandiri : Waiting For The Improvements To Come
Eka Savitri
Vice President
Research Analyst - Banking
PT. RHB Securities
Indonesia
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