DBS BMRI Improving fundamentals

• 9M09 net earnings of Rp4,620bn is in line with our FY09 estimate.
• Starting to see loan growth, and ROE improved driven by a better capital structure
• TP raised to Rp6,000, reiterate BUY.

3Q09 net earnings grew 10.9% q-o-q.
Net interest income fell 4.2% q-o-q in 3Q09 as asset yield fell 50bps. This was due to the large decline in yields of bonds and SBIs portfolio, which when combined make up 36% of the bank’s earnings assets. Meanwhile, cost of fund fell only 10bps, and as such NIM fell to 4.9% in 3Q09 from 5.3% in 2Q09. The bank booked Rp442bn provision
charge for the quarter as it disbursed Rp23.9tr worth of loans. Operating expenses also dropped by 2.5% q-o-q, so that operating expenses-to-operating income ratio improved to 74.4% from 75.6% in 2Q09.

Loans starting to grow.
On its balance sheet, total loans grew 3.2% q-o-q driven mainly by the consumer, corporate and commercial segments. Gross NPL improved to 3.64% from 4.78% in 2Q09, driven by higher provision and better loan quality mainly in the corporate segment. Third party funds rose 2.9% q-o-q while the proportion of CASA remained at 57%.

Reiterate BUY.
BMRI posted 20.5% ROE in 3Q09, which brought 9M09 ROE to 19.4%. The higher ROE is driven by its improved balance sheet structure and normalized provision. Hence, we revised our sustainable ROE assumption to 22%. We also revised FY10F and FY11F
earnings by 8.1%% and 24.3%, respectively, which raised our target price to Rp6,000 based on 3.1x FY10 PBV (cost of equity: 14.5%; sustainable growth: 11%).