Nicolaos Oentung examines Bank Danamon’s (BDMN IJ) 1Q09 result. His comments that this is a poor quarter esp on the asset quality front with sharp NPL increases and special mention loans. The result reaffirms Nico’s view that BDMN will generate sub-par returns i.e. low teens or possibly lower this year. Nico maintains his SELL call with TP of Rp1,700.
We at the sales desk think that Nico TP at 0.9x P/B is probably too harsh but after the recent rally, upside for BDMN (now at 1.5x P/B) seems rather limited.
Key points from the report:
Results below expectations. BDMN reported 1Q09 net profit of Rp393bn, returning to black from the previous quarter but still down 30% YoY and accounting for only 21% of our and consensus FY estimates.
Asset quality worsening. Loan loss provisions +42% QoQ as NPL shot up, +19% QoQ, along with special mention loans, +45% QoQ.
Asset quality in the mass market (mainly DSP) also deteriorated, cost of credit jumped to 4.6%of loans from 2.1% in 4Q08.
Operating performance weak. NIM rebounded to 9.6%, up 40bp QoQ but still down 70bp YoY, helped by modestly lower cost of funds, but also higher asset yields.
BDMN is now paying lower TD rates (from 14.5% to max 10.5%) but unfortunately they are also losing their low cost deposits.
The issue on FX derivatives is mostly behind us.
Valuation: after the recent rally, the stock is now trading at 1.5x09CL PBV.
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