RHB Indonesia - Bank Mandiri - Time To Rise Again (Bank Mandiri, Astra International) Unknown Kamis, 20 Juli 2017




Good morning,

Bank Mandiri – Time To Rise Again

We maintain our BUY call and lift our GGM-derived TP to IDR15,000 (from IDR13,300, 13% upside) as we roll over our valuation to 2018. We assume a rebound in earnings growth coming from lower credit cost, due to a stabilised new NPL formation. We also estimate a decent 208bps credit cost and 136.6% LLC ratio for next year, which should stem from Mandiri’s business strategy shifting again to focus more on corporate and consumer lending (payroll loans and mortgages). These two segments provide lower risks, despite their lower loan yields.


¨ Corporate segment still a major part its business. Bank Mandiri (Mandiri) would continue to grow its core business by focusing more on the corporate segment. Astra International (ASII IJ, BUY, TP: IDR9,850) is one of Mandiri’s corporate borrowers. Additionally, Mandiri would also support government infrastructure projects in toll roads (the Jakarta-Cikampek and Bitung-Manado sections) as well as in electricity. All in, we expect a higher contribution of 40.8% from corporate lending to its total loan book by the end of next year (Jun 2017: 35.6%).
¨ Another growth engine: consumer lending. Aside from corporate loans, Mandiri would also push consumer lending, particularly mortgages and salary-based loans. Amid aggressive promotional mortgage rates within the market, its current strategy is to partner top developers, ie Bumi Serpong Damai (BSDE IJ, BUY, TP: IDR2,650) and Ciputra Development (CTRA IJ, BUY, TP: IDR1,900). Meanwhile, for salary-based loans, Mandiri has to compete with Bank Rakyat Indonesia (BBRIIJ, BUY, TP: IDR16,500) and several regional banks as its closest competitors. Yet, its strategy to tap both payroll payments of government-related and private institutions’ employees would help to support earnings growth, going forward. Hence, we expect consumer lending to grow 20.7% YoY next year, bringing its contribution to 15.7% of Mandiri’s total loan book by end-2018.
¨ On-track asset quality improvement. Credit cost dropped to 235bps in 2Q17, which should be an indication that the pressure on asset quality has started to ease. Mandiri’s management would continue to implement better risk management and reduce its commercial lending exposure on its loan book going forward. We expect credit cost to reach 208bps next year, with a 3.4% gross NPL ratio. This would be supported by higher contributions from corporate and consumer lending, ie two segments that have lower risk profiles.
¨ Reiterate BUY. Maintain BUY, with a new GGM-derived TP of IDR15,000 (which also implies 1.96x 2018F P/BV) as we roll over our valuation to 2018 while maintaining our forecasts. We also assume a CoE of 9.2%, sustainable ROAEs of 15.2%, and a long-term growth rate of 3%. We view the multiple as reasonable, due to the lower credit costs in the next following years coming from a loan mixture being skewed towards corporate and consumer lending.
¨ Risks to our call are slower-than-expected asset quality improvement (which should result in higher credit costs) and soft GDP growth which would dampen loan demand, particularly for corporate lending. (Eka Savitri)
Link to report: Bank Mandiri : Time To Rise Again
Link to daily report: Indonesia Morning Cuppa 200717


Company Update:

Astra International (ASII IJ, BUY, TP: IDR9,850), Still a Leader Despite Intensifying Competition
Astra is likely to maintain its pole position in the domestic vehicles, market even though competition may tighten in 2H17. SGMW and MMKSI are set to launch new MPVs that may compete with Astra’s Toyota Avanza and pressure its sales. However, these new players would need to develop their after-sales services and dealer network to attract customers. Astra has booked above-industry sales growth, and has grown its share of the 4W and 2W markets. BUY, with our SOP-based IDR9,850 TP (14% upside) also implying 17x FY18F P/E.

¨ Greater competition ahead. In 2H17, SAIC GM Wuling (SGMW) and Mitsubishi Motors Krama Yudha Sales Indonesia (MMKSI) are set to launch new MPV models that may compete head-to-head with Astra’s Toyota Avanza.
SGMW will launch a small MPV, ie the Confero S (estimated selling price: IDR130-165m), with a manual transmission. It is still unclear whether the model would have a 1.4L or 1.2L capacity. SGMW may also launch the Confero (<1.2L) in Mar 2018, which would directly compete with Astra’s low-cost green car (LCGC), the Toyota Calya. SGMW may start assembly of the Confero S in Jan 2018, and has targeted monthly production of 8,000 units. It also aims to have 50 dealers, of which 19 would be located in Jakarta.
MMKSI just released pictures of its low MPV, the Mitsubishi Expander – which is developed from the Mitsubishi XM Concept. MMKSI claims that the Expander will have larger dimensions than rival models in the low-MPV class. The estimated price has not been disclosed. Construction of the new Mitsubishi plant – with production capacity of 5,000 units a month – is nearly complete. Mitsubishi now has 87 passengers car dealers to boost sales.
¨ Astra International (Astra) likely to stay on top. Astra’s strong after-sales service, with 675 dealers (which include 282 for Toyota and 230 for Daihatsu) is a huge entry barrier for new players. Currently, it is not easy to find strategic locations for dealerships at reasonable prices, as space in major cities is already fully occupied. For 2017, Astra has allocated about IDR3trn to expand 10-15 auto dealership centres and maintain the remainder in its network. Its competitors would find it difficult to match that level of capex.
¨ No. 1 in sales. Astra’s four-wheel (4W) market share rose to 56% in 1H17 (from 51% in 1H16), while its two-wheel (2W) market share was at 74% (1H16: 73%). 1H17 4W vehicle wholesales grew 9% YoY, despite the low sales season during the Lebaran holiday which occurred in June this year. Although its 1H17 motorcycles wholesales declined 7% YoY, it is upgrading its motorcyle sales mix to more higher-end models. According to Astra, consumers now prefer motorcycles with larger engines. For example, the Honda Varios equipped with 125cc and 150cc engines are selling better than Varios with a 110cc engine.
¨ BUY, with a IDR9,850 SOP-based TP implying 17x FY18F P/E. The downside risk is higher-than-expected competition, especially for low-MPVs. Astra’s low-MPV sales averaged 13,600/month in 1H17, or c.27% of total car sales. (Andrey Wijaya)
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Best regards,

Helmy Kristanto
Director
Head of Indonesia Research
PT RHB Sekuritas Indonesia


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