CLSA Bank Mandiri, solid credit metrics, accelerating COF decrease

Bret Ginesky wrote a report on Bank Mandiri (BMRI IJ). 3Q09 results are in line with expectations. Cost of funds decrease is accelerating. CASA increased on QoQ basis by 50bps to 57.5%, yet another validation of the bank’s second strongest deposit taking franchise in the country (after BBCA).

The best story here is the credit mix that looks solid, with expenses under control.
Valuation-wise, BMRI is trading at 2.3x and 11.6x 2010 PBV and PE. ROA and ROE continue to improve, more in line with high performing peers. Maintain BUY with TP of Rp5,800.

Key points from the report:

In line results with 3Q09 net income up 11% QoQ and 18% YoY.
Expect 4Q09 to be stellar, as COFs continues to adjust downward.
Loan growth reaccelerated to nearly 4% QoQ, led by corporate, commercial and micro strength.
NIM (down 25bps YoY) is set to rise as COF decrease in 4Q09.
COF decreased by 10bps to 4.8%, as time deposits began to reprice downward due to the rate agreement.
Asset quality continues to improve as gross NPL’s decreased by 65bps YoY to 3.79%, and the coverage ratio increased by 1910bps to 155.2%.
Management continues to improve ROA and ROE at the bank level, up 11bps and 143bps respectively to 2.78% and 25.95% figures that are closing the gap with high performing peers. Positive catalysts for BMRI are the increasing GDP expectations and a prolonged low rate environment in Indonesia