Wednesday, May 25, 2011

More aggressive loan expansion - PT. Bank Mandiri Tbk

by Ciptadana Securities

Maintain BUY on Mandiri with target price of Rp 9,200/share We maintain BUY on PT Bank Mandiri Tbk with a target price of Rp9,200/share. The potential upside of our target price from the current price of Rp6,900 is 33%. Our target price implies 2011 justified P/B of 3.5x with 14.8% cost equity and 23% sustainable ROE assumptions. Recovery from Garuda loan of Rp1.5 trillion is not incorporated on our target price and we believe that it would not impact BMRI valuation materially given the sheer size of BMRI book value. Our book values for BMRI estimates suggests 2.7x 2011 P/B and 2.4x 2012 P/B.

First quarter results

BMRI’s net income increased substantially in first quarter of 2011 (3M11) to Rp3.8 trillion from Rp2.0 trillion in 3M10 or increase 89% YoY. Net interest income contribution to net income growth was quite significant where net interest income rose 11% to Rp4.9 trillion in 3M11. Expansion of loan book played its role for the BMRI’s net interest income growth where the bank’s loan increased 25%YoY to Rp252 trillion. Freshly injected equity for more aggressive loan expansion The recent Rp11.7 trillion rights issue of BMRI was significant to boost its capital adequacy where the bank’s CAR jumped to 18.5% in Q1-11 from 13.1% in FY10. Adequate capital is what the bank need to jumpstart its more aggressive loan book expansion. From 67% LDR in 2010, we estimate that the bank will increase its LDR to 70%, 72% and 75% in 2011, 2012 and 2013, respectively. The management target for BMRI’s loan book growth is 20-22% in 2011.


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