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Monday, June 27, 2011

Bank Danamon : counting on cars, downgrade to UPF with new TP6,200

by CLSA Securities : BDMN

Bank Danamon (BDMN IJ): counting on cars, downgrade to UPF with new TP6,200

Nick “Chindonesia” Cashmore is downgrading Danamon to an UPF. In spite of having a smaller balance sheet amongst the larger Indonesian banks, Danamon has the most employees and therefore largest fixed cost (largest personnel expenses/earning assets). And although only 3% of BDMN’s loans are non performing, another 10% are special mention. Almost half of the NPLs are from the mass market segment, which also account for 89% of special mention loans. We prefer Bank Mandiri (BMRI IJ) and Bank Negara (BBNI IJ) in the sector.

Key highlights:

Danamon is the sixth largest largest bank in Indonesia with one of the most diversified lending bases

Adira Finance accounts for 65% of the mass market loan portfolio and 38% of total loan book

BDMN’s personnel cost/earnings assets are the highest amongst peers at 3.8%. The bank has over 35,000 employees, more than even Bank Rakyat.

Although only 3% of loan are NPLs, 47% of all non-performing loans comprise mass markets loans which also amount to 89% of special mention loans

Capital remains high at 18% but the group is adding leverage to sustain ROA of 3%

Valuations will tighten to towards the mean. Downgrade to UPF. New TP6,200 implies 12.5x 2012 earnings.

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