Bank Danamon, Auto Margin Crunch, CLSA

BDMN’s FY11 results were in line with our and consensus expectations. In
our view, the issues for the bank remain the same: (1) lower yields from
car/motor financing unit Adira Finance (ADMF) due to competition and a
change in portfolio mix, (2) high cost of funds due to high LDR and weak
funding franchise and (3) an un-exploited mass market segment. BDMN
has an opportunity to regain its strong position in the wet market
segment thus reducing its reliance on vehicle loans while improving its
margins. We maintain our underperform call on the counter.

Net profit was in line with expectations
BDMN reported net profit of Rp3.3tn in FY11, which was in line with our
expectations and consensus estimates. Net interest income grew by 9.5% YoY
to Rp10.8tn, supported by a 23% YoY growth in loans. Of the total loans, the
mass market still accounted for most of the total loans at 58.3% thanks to
strong loan growth from vehicle loans (+35% YoY).
NIM contracted due to competition and a shift in portfolio mix
Despite the lower interest rate environment, BDMN’s NIM still contracted from
9.7% in 3Q11 to 9.6% in 4Q11 due to lower yields from earning assets and
an increase in cost of funds. A change in ADMF’s portfolio mix (increasing
exposure to car loans vs motorcycle loans) and tighter competition were
among the culprits behind the decline in loan yield. Meanwhile, a high LDR is
believed to be one of the reasons for the rise in cost of funds.
Progress made on rebuilding its mass market segment
BDMN expects to regain strong growth in its micro unit Danamon Simpan
Pinjam (DSP) this year after addressing its human capital issues. The bank
has just recruited over 10,000 new employees and targets DSP growth of
20% YoY this year (vs 7.4% YoY last year). We believe this target can be
achieved considering the fact that the micro loan market is still
underpenetrated and the bank already has the infrastructure to serve this
segment.
Reiterate underperform call
The current lower interest rate environment has provided less support for
BDMN’s performance so far, as reflected by its higher cost of funds.
Meanwhile, tighter competition in the auto financing segment creates
concerns of further margin contraction as well as possible loan quality
deterioration. We maintain our underperform call on the counter.

Download file : Indonesia BDMN 160212 Final