BMRI’s 1Q profit came in at Rp3.4T, in line with our estimate and slightly
ahead of consensus. We see moves to reduce variable bond exposure as a
positive, but wonder whether it is premature to price upside on that count
into the stock price; hence, we maintain our Dec-12 Rp7,250 PT.
Healthy results: At Rp3.4T, BMRI’s 1Q FY11 PAT was up 10% q/q
and came in 4% ahead of our estimate. Adjusted for one-off recoveries
last year, PAT grew by 39% y/y. Growth was driven by volumes – loans
grew by 29% y/y (in line with JPME), while margins (NIM 5.65%) have
been rangebound over the past five quarters. As 1Q PAT was 25% of
FY12E consensus, it might result in mild upside to estimates.
Seeking options to cut variable bond exposure: BMRI’s variable rate
bond portfolio remains a drag on asset yields. Management said that it
was exploring three options to reduce its holdings of VR bonds. These
are: a) a gradual sale to BI; b) the finance ministry buying
back/switching bonds; c) market transactions, including swaps and
bundling the bonds into securities. This is a positive development, in our
view, but we think it might be too early to start pricing in a resolution of
this issue.
Stay Neutral: We are positively disposed towards BMRI, but our Dec-
12 Rp7,250 PT does not imply much headroom on the stock. We
therefore maintain our Neutral rating, looking to buy on dips. Evidence
of progress on a variable rate bond transaction would be a catalyst for us
to be more aggressive in seeking upside and is an upside risk to our PT.
Risks: BMRI’s LDR stands at 80%. Management articulated a long-term
85% LDR target. Given that 13% of BMRI’s assets are illiquid variable
rate bonds, liquidity may pose a risk to medium-term growth. BMRI’s
auto loans grew at 69% y/y. Rapid growth might sow the seeds of future
risks. Despite rapid growth, BMRI’s micro portfolio is forming NPLs at
an annualized rate of 6%, which could pose a risk to our PT.
Download file : BMRI 1Q result
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