Bank Rakyat Indonesia (BBRI IJ, BUY, TP IDR12,000) Results Review: Navigating Challenges - Daily Pack 24 April 2014

Bank Rakyat Indonesia’s 1Q14 earnings were within estimates, although they bear a somewhat cautious tone, in our view. As cost of funds inched up, NIM saw sequential squeeze but cost management and benign credit cost supported earnings. The growth and health of the micro business were well-sustained. Liquidity is becoming a challenge as LDR hit a new high and non-micro loans growth could subsequently be moderated.

¨       1Q14 within expectations. Bank Rakyat Indonesia’s 1Q14 net earnings of IDR5.94trn (1% q-o-q; 17% y-o-y) represented 25% of our and consensus’ full-year estimates. Net interest income contracted 4% q-o-q (+25% y-o-y) as cost of funds continued to tick up while asset yields tapered. Annualised 1Q14 net interest margin (NIM) contracted 70bps q-o-q although it remained 45bps higher than FY13’s NIM. Normalisation of non-interest income (-42% q-o-q; -10% y-o-y) created some drag to operating income, but cost management (-1% q-o-q; 12% y-o-y) and lower impairment (-32% q-o-q; 63% y-o-y) provided support to earnings.

¨       Micro business stays resilient but liquidity tightens. Credit growth (flat q-o-q; 20% y-o-y) moderated across the board but micro loans growth was relatively more resilient (21% y-o-y) than other segments (corporate: 19% y-o-y; small commercial: 21% y-o-y; medium: 16% y-o-y; consumer: 18% y-o-y). Gross non-performing loans (NPL) ratio ticked up slightly on a q-o-q basis but remained healthy at 1.8% (4Q13: 1.5%). Customer deposit shrank 3% q-o-q (17% y-o-y) on seasonality, and loan-to-deposit ratio (LDR) rose to a new high of 92%, indicating further tightening in liquidity. Micro deposit grew steadily (17% y-o-y) but the growth pace remained below that of loans. Tier-1 sat comfortably high at 17.5%.

¨       Takeaways from analyst briefing. Bank Rakyat Indonesia has raised lending rates by 50-100bps in small medium enterprise (SME) and corporate loans. Management believes that another 25-50 bps rate hike is possible and is prepared to raise rates further if rate hike materialises. The bank maintains its 2014 credit growth target of 20-22%, but as liquidity increasingly becomes a challenge, it may review its targets pending the progress of liquidity in 2Q14. (Rocky Indrawan)

ON THE PLATTER:

Arwana Citra Mulia (ARNA IJ, BUY, TP IDR1,050) Results Review: Better 1Q14 Earnings

FROM TRADING DESK: JCI today is expected to be traded at 4,915.57 and 4,940.24

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Best regards,

RHB OSK Indonesia Research Institute