Bank Mandiri, Saved by retail, CLSA

While the lower yield on VR bonds may continue weighing on the bank’s
performance this year, a better loan mix and funding composition will
compensate for it, in our view. Against this backdrop (which we believe is
more external than internal), we like the bank’s consistent efforts to grow
its retail segment and strengthen its deposit franchise. We therefore
maintain our outperform call on the bank despite heightened regulatory
risk which may put pressure on the bank’s LT ROE, similar to other banks
in the system.


Solid loan growth
BMRI was one among a few large banks whose loans grew very aggressively
last year. BMRI’s loans grew by 28% YoY, claiming 14.1% market share in
the system in 2011. Even though this year overall growth may slow to 20-
22% YoY, retail loans will still grow higher, improving the bank’s loan
composition more toward the higher-yielding segment. Retail loans are
expected to contribute 32% of total loans this year from 30% at end 2011.

Yield on government bonds may have bottomed out
The latest auction on the 3-month T-bill which yielded 3.1% gave hope that
the yield has bottomed out from the 2.2% previously. We forecast the
average yield to reach 3.5% in 12CL (a decline from 4.5% previously) and
expect the negative impact to be compensated by a better loan mix and
funding composition. It is also worth noting that the dependency on interest
income generated from government bonds has significantly fallen over the
past four years.

NPLs expected to remain below 3%
Despite indications of rising absolute NPLs in 2011, we expect NPLs to remain
below 3% this year. BMRI will monitor exposure to the corporate segment,
particularly related to commodity sector because of the volatility in
commodity prices.

TP of Rp7,700 (9% potential upside) - maintain Outperform
We tweaked our earnings forecast for BMRI by 4.4% and 1.1% for FY12/13
respectively, to reflect lower yield on government bonds which will partly be
compensated by better loan mix and funding composition. We also reduce our
TP to Rp7,700 to reflect heighten regulatory risks. Nonetheless we maintain
our outperform call as we still like the bank’s well defined strategy to grow its
high yield segment and strengthen its deposit franchise.

Download file : Indonesia BMRI 090412 final 2