Bank Mandiri (BMRI IJ; Buy; TP IDR11,000) Results Review: Conservative And Confident

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Bank Mandiri (BMRI IJ; Buy; TP IDR11,000) Results Review: Conservative And Confident

Bank Mandiri’s 1Q14 fell within estimates. CoF growth was well guarded although asset yields contracted on a sequential basis. Given the trajectory seen in 1Q14, the bank guides that its full-year NIM and provisioning may be conservative. As it expects sector NPL to experience peaks in 2H14, it is confident on its asset quality outlook. It remained muted on the potential acquisition of Bank Tabungan Negara.

¨       1Q14 in line with estimates, net interest margin (NIM) guidance may be too conservative. Bank Mandiri’s 1Q14 net earnings of IDR4.93trn (- 9% q-o-q; +14% y-o-y) represented 25% of our and consensus full-year estimates. The rise in cost of funds (CoF) was arrested at a modest 15bps q-o-q (+50bps vs FY13) while asset yields normalised on q-o-q basis (-35bps q-o-q; +50bps vs FY13). Annualised NIM of 5.8% topped the upper end of management’s guidance of 5.7% and Bank Mandiri indicated that its full-year guidance could be conservative given that 1Q is a seasonally weak quarter for NIMs. Elsewhere i) non-interest income contracted 14% q-o-q on lower fees, ii) operating costs normalised (-14% q-o-q; +16% y-o-y) and iii) credit costs rose 43% q-o-q (+12% y-o-y).

¨       Modest pressure on non-performing loans (NPL). The pace of loans growth slowed down to 20% y-o-y, notably in commercial (14% y-o-y) and consumer (16%) loans. Deposit exhibited a seasonal trend, contracting 10% q-o-q (14% y-o-y). Loan-to-deposit ratio inched up to a new high of 89%. Nominal NPL rose 10% q-o-q (+21% y-o-y) to lift gross NPL ratio higher to 2.1%, with a notable increase in small and micro loans NPL. Special mention loans also rose 11% q-o-q (+26% y-o-y). Management remains optimistic on asset quality outlook, suggesting that the retail NPL weakening in 1Q was seen as seasonal.

¨       Takeaways from the analysts’ briefing. Bank Mandiri expects sector NPL to see a peak in 2H14 as the full impact of rising costs and rates on businesses should be visible. Maximum time deposit (TD) rate has been adjusted lower by 50bps to 10.5%. However, management guided on limited room for upward re-pricing in IDR loans, which we believe could be a conservative gesture. Bank Mandiri remains muted on the potential acquisition of Bank Tabungan Negara (BBTN IJ, SELL, TP: IDR1,100).

Best regards,

RHB OSK Indonesia Research Institute