Monday, December 12, 2011

Bank Mandiri. Tbk - ATM Expansion Has Not Yet Driven ATM Utilization

by Trimegah Securities

Mandiri aggressively expanded its network as this goliath tries to deepen its presence on transactional banking, positioning itself head-to-head with incumbent BCA. Mandiri opened 2488 new ATMs in the past six months. While we like such aggressive management attitude, we maintain a wary outlook on expansionary push, given its utilization is relatively low compared to BCA. Mandiri’s network of 8993 ATMs delivered a total of 184mn transactions with total transaction value of Rp145tr vs. BCA’s 8070 ATM network which scored 292mn transactions grossing Rp280tr of transaction value. The figures suggest that Mandiri’s expansion with 2488 new ATMs yielded 24mn incremental number of transactions worth Rp26tr in the past six months vs. BCA’s additional 32mn transactions with total value of Rp55tr from its 515 new ATMs over the same period. All in all, the utilization of Mandiri ATMs stands at about ~56% of its biggest competitor. Nonetheless, we believe the longer term prospect is robust for Mandiri, and there remain room for improvement for this particular aspect.

Strong Growth to Continue

Mandiri delivered strong loans expansion of 7.0% QoQ to Rp253tr as the bank’s loans portfolio booked a satisfactory level of growth. Growth rates for different customer segments are as follows: corporate loans grew 7.2% QoQ, commercial loans 6.6% QoQ, SME loans 7.0% QoQ, consumer loans 5.8% QoQ, and micro loans 12% QoQ. On the funding side, however, the growth profile is not as robust as its asset side, with total funding increasing 2.9% QoQ and LDR advancing to 79%. With CAR ratio at 16% post rights issue, we believe strong growth will continue going forward. Furthermore, expansion of network and branches has successfully gained for Mandiri approximately ~200 thousand new depositors and ~400 thousand new debtors, thereby generating 20% QoQ growth in administration fee income. AXA Mandiri, a new venture in the insurance sector, also posted extraordinary results, with Rp2.4tr net premium income and Rp10tr total assets. Management is confident that it could enhance shareholders’ value by ~Rp24tr based on the Appraised Value Method.

Strong Profitability Profile despite Easing NIM

Mandiri recorded net profit of Rp9.1tr despite its NIM easing to 5.1%. Contrary to positive growth profile of loans and LDR, which reached the statutory limits, hence increase earning asset proportion, NIM fell by 6bps QoQ. The NIM pressure comes after the benchmark rate standard alteration of variable rate government bonds from SBI to T-bills, mark to market of GIAA shares hold by Mandiri Sekuritas, and pawn broking fees of Bank Sharia Mandiri which is accounted as fee based income. Mandiri will continue to show high sensitivity toward movements in the bonds market as it retains Rp76tr of variable rate government bonds, or equivalent to 18% of earning asset. Hence, a 10bps of T-bill yield change will affect bottom line by ~Rp66bn.

Maintain BUY, TP of 9000

We maintain our Buy recommendation on Mandiri with TP of 9000, reflecting 2.9x 2012 PBV and 15.5x 2012 PE (WACC 13.7%, 22% ROE, 11% growth). Aggressive management and strong business growth remain the biggest catalysts for this stock performance. Amid global economic uncertainty, however, we should be aware that high corporate loans exposure might post some asset quality deterioration going forward.

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