Monday, May 9, 2011

Still on the right track - PT. Bank Mandiri Tbk

by Samuel Securities

 As of 1Q11, BMRI recorded net income of Rp3.9 tr, above our expectation and market expectation. It was mainly caused in our model we have not booked racovery loan from Garuda. Meanwhile, on main operating business, 1Q11 still in line with our expectation.


 Portfolio of small, micro and commercial loan was enhanced from 24.18% on FY07 to 29.15% on 1Q11, on the other hand, portfolio of corporate loan decreased from 47.10% on FY07 to 41.76% on 1Q11. This is a positive achievement because; 1) Historically, majority of nonperforming loan came from corporate loan and 2) small, micro, and commercial gave high interest rate compared to commercial and corporate loan.

 Cost to income shrank significantly to 31.7% from 42% on FY11 mainly due to recovery loan from bad debt of Garuda (+/- Rp1.4 t), but with the exclusion of recovery loan from Garuda, cost to income stiill improved to 37.1% (see fig. 2).

 NIM declined to 5.1% from 5.4% on FY10 mainly due to 1) decline of corporate lending rate (majority of corporation have other option for raising fund from bond), and 2) decline in yield of government bonds (benchmark shifted to SBN).

 We revise our forecast incorporating recovery loan and unused loan provision. We also cut our operating expenses as we believe the company can manage lower cost.

Action and recommendation:

 As a result of forecast upgrade, we upgrade our target price. Our new target price is Rp8,300 (from Rp7,900) reflecting 3.7x book value compared to the average sectors of 2.8x. We believe BMRI is feasible to be traded at premium, supported by the strong performance which was reflected by high ROE. Maintain BUY

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