KimEng Bank Mandiri: Waiting for bigger earnings booster, HOLD

Robust loan growth not yet in fashion
Given the 7.1% YTD loan growth achievement as of 9M09, Mandiri’s FY09 result is not likely to reach our optimistic estimate of 20.4%. With rising idle loan facility as evidence, we do not see loan appetite from corporate and commercial segment to accelerate until 2010, while that of the high-yield segment, although keeps increasing, is still too low to provide significant boost to the overall loan book. Nevertheless, a full year growth as low as 16% in 2009 will not jeopardize the bottom line earnings forecast even when coupled with a declining trend in yield. Supporting the downward pressure is a lower-than-expected provisioning expense.

Peak of NPL is last season
Bigger loan repayment from Rp270b in 2Q09 to Rp400b in 3Q09, although resulted in lower outstanding amount, also indicates improving loan quality. On QoQ basis, NPL has gradually slided down from 5.9% in 1Q09 to 3.8% in 3Q09. We estimate the YE09 rate to remain low at 4.1%, which translates into reduction in the provisioning expense from previously Rp3t to Rp2.5t.

NIM unchanged at 5.1%
Mandiri is included in the list of banks that benefit from the agreement to limit time-deposit (TD) rate at 8%. Less than two months after implementation, the bank managed to press its CoF from 4.9% in 2Q09 to 4.8% in 3Q09. We expect the downward trend to continue to 4.3% in 4Q09 as more deposit re-pricing will take place along with further reduction in TD ceiling rate to 7%. At an estimated 8.7% deposit growth in 2009, it will counter the effect from declining yield, which we projected to touch 8.9% in 4Q09. The net outcome is a remaining stable NIM at 5.1% by YE09.

Maintain HOLD, TP at Rp4,600/share
The above mentioned adjustments resulted in averagely 6% increase in profit, to Rp6.4t in 2009 and Rp8.1t in 2010F. Note that we already took into account Rp1.01t debt settlement with Garuda Indonesia, which is subject to IPO of the airline company. We increase our TP on Bank Mandiri to Rp4,600/share implying 2010F PER of 12.6x and PBV of 2.4x. HOLD.