by Bahana Securities
Bank Danamon (BDMN) registered 1H11 net profit of IDR1.47t (+2.8% yy), in line with our expectation but below market consensus, accounting for approximately 44.1% and 42.3% of our and full-year market estimates respectively. This implied 1H11 ROE of 16.5% vis-à-vis 18.0% in 1H10.
BDMN’s 2Q11 net profit contracted 6.9% q-q to IDR710b, with NIM of 9.8% vis-à-vis 10.2% in 1Q10. The pressure in margin was due to: 1) the decline in the proportion of higher yielding loans (i.e. mass market) to total loans, 2) competitive loan pricing, 3) lower yields on government’s variable recap bonds and 4) higher funding cost. The bank recorded 2Q11 average yield on earnings assets of 15.5% (-30bps q-q) while the cost of funding crawled up to 5.7% from 5.6% in 1Q11. Note that loans to mass market accounted for 57.3% of 2Q11 loan portfolio vis-à-vis 58.0% in 1Q11.
2Q loans grew 7.9% q-q, bringing ytd loan growth of 12.3% to reach IDR92.8t. In contrast, the third party funding grew by only 1.3% q-q or 3.2% ytd, boosting LDR to 111% in 2Q11 from 104% in 1Q11.
Despite 2Q11 weak result, the improvement in earnings is anticipated in the subsequent quarters as loans are expected to remain strong. The management revised 2011 loan growth target to 22-25% from 20-22% previously. Additionally, BDMN has targeted its long term loan growth to move ahead, at least, in line with the industry’s average. Its recent intention to enhance its capital base via rights issue should support this loan expansion while complying with BI’s 78-100% LDR linked reserve requirement.
Recommendation and valuation
We retain our Hold recommendation on BDMN with target price at IDR6,500, implying 2012 P/BV of 2.4x (prior to rights issue). HOLD.