Bank Danamon (BDMN IJ, SELL, TP IDR3,700) Results Review: A Difficult Start - Daily Pack 17 April 2014

Bank Danamon booked a weak 1Q14 as earnings contracted, causing it to miss estimates. Asset yields did not improve as loans growth was tepid and driven by the non-mass market. As TD grew and current account savings account (CASA) contracted, CoF soared and NIMs declined further. While it expects loans growth to pick up and NIMs to sustain at current levels, potential downsides remain. Maintain SELL.

¨       1Q14 earnings below estimates. Bank Danamon’s 1Q14 earnings contracted 16% q-o-q (-13% y-o-y) to IDR875bn, which represented ~22% of our and consensus full-year earnings. Net interest income growth was paltry at 2% q-o-q (+4% y-o-y) as cost of funds (CoF) rose and net interest margin (NIM) continued its decline. Non-interest income contracted 11% q-o-q while credit costs rose 10% q-o-q to further compound the weakness in earnings. We maintain our SELL rating.

¨       Lacklustre display. Bank Danamon’s loan book did not grow on a sequential basis while, on a y-o-y basis, its non-mass market loans grew 27% vs mass market loans growth of 6%. This caused asset yields to remain flattish at ~14.1% in 1Q14. Time deposit (TD) growth of 13% q-o-q (+38% y-o-y) drove customer deposit growth as current and savings deposits contracted 13% and 12% respectively on a q-o-q basis. CoF consequentially spiked 37bps q-o-q, putting downward pressure on NIM. Liquidity position improved y-o-y, but remained tight with bank-only loan-to-deposit ratio (LDR) at 96% (1Q13: 106%) and consolidated LDR at 123% (1Q13: 136%). Bank Danamon’s gross non-performing loans (NPL) remained stable at 1.9% and its tier-1 is high at 18.4%.

¨       Takeaways from analyst briefing. The bank expects demand for loans to improve in 2Q14 and expects full-year credit growth of 16% y-o-y. Loans by Adira Finance will continue to be tilted towards the four-wheel-vehicle (4W) segment. As TD rate was lifted to around 9% in 1Q14 from 1Q13’s 6.2%, Bank Danamon saw CoF peaking in 1Q14. It will like to maintain the current level of NIMs throughout the remainder of the year, although potential downside lingers should Bank Indonesia’s benchmark interest (BI) rate be hiked further. Consolidation of the bank’s micro business remains ongoing, which will likely cap growth. (Rocky Indrawan)

On the Platter: Bank Tabungan Negara (BBTN IJ, SELL, TP IDR1,100) Results Review: A Silver Lining On The Horizon?

FROM TRADING DESK: JCI today is expected to be traded at 4,906.07 and 4,952.62.

MEDIA HIGHLIGHTS:

Indomobil’s 1Q14 car sales declined to 21.8k units (-10.8% y-o-y), in line

Mandiri and BTN to get approval for merger

Bosowa to join fellow cement makers on the bourse

Astra Otoparts acquisition plan

ASRI targets IDR1trn from new project

INSA is optimistic that it can fulfill the offshore support vessel (OSV) demand in 2015

Indication of lower BI Rate

Best regards,

RHB OSK Indonesia Research Institute