§ 3Q12 net profit -10.4% q-q, +1.3% y-y: BDMN registered 3Q12 net profit of IDR988 (5% below our estimate), down 10.4% q-q but up 1.3% y-y. This translates to 9M12 net profit of IDR3.0t (+22.2% y-y), in line with our (72.9%) and consensus (74.6%) estimate.
§ Weak operating income and high costs increased CIR: Although BDMN’s net interest income grew 0.9% y-y and 20.1% y-y, the lower non-interest income on declined credit related fees and increases in operating costs on new hiring resulted in the contraction of pre-tax profit (-10.2% q-q, -0.2% y-y), bringing CIR to 76.1% in 3Q12 from 72.8% in 2Q12 and 74.3% a year earlier.
§ Lower contribution from high-yielding loans pressured margins: BDMN booked slower 3Q12 loan growth of IDR113t (+2.5% q-q, +16.1% y-y), bringing ytd loan growth to 11.2%. Although auto and micro loans grew 15.1% and 12.0% y-y respectively, q-q growth displayed some slowdown on the back of lower demand for 2W and tight company competition in micro financing. This, combined with a strong pick up in low yielding corporate and SME loans had led pressure on NIM, down to 10.1% in 3Q12 from 10.3% in 2Q12, despite improvement in blended cost of funding on declined deposit and higher CASA ratio.
Outlook: Challenging ahead, coming from high-yielding loans
We maintain our 3Q12 earnings forecasts on limited growth of high-yielding loans. For 2013, although we expect some pick up in auto financing, competition will remain severe, particularly for micro loans and hence further pressure on NIM would appear inevitable. On a positive note, BDMN’s pawn broking has shown progress, growing 37.4% q-q but only accounting for a minuscule portion of the loan portfolio.
Recommendation & valuation: HOLD on M&A deal
We maintain our neutral view on BDMN with a target price of IDR7,000 as we believe that the M&A deal is likely to go through (refer to our BDMN flash dated 8 August 2012). With limited upside, we retain a HOLD rating.