AAA Company Update_BMRI_

Bank Mandiri held an analyst meeting last Monday to report its FY2009 Result as well as publishing FY2010 management’s target. The bank booked profit by Rp. 7.115 trillion or outpaced our and consensus estimates by 16% and 13% respectively. Its net interest income increased 15% because of 13% loan growth booked by the bank. On the other hand, its provision expense declined by 23.1% YoY because of better assets quality. Bank Mandiri NPLs reduced from 4.73% in FY08 to 2.79% in FY09. In addition, the bank restated its target to be Indonesia ’s most admired and progressive financial institution by become the first market capitalization bank by 2014. The strategy will be implemented by maintaining its dominant presence in corporate banking, be the retail deposit bank of choices, and build number 1 or 2 in key retail financing segment, including mortgages, personal loan & cards, micro and syariah banking.

Tunas Mandiri Finance : A New Loan Generating Machine
After acquired from Tunas Ridean (TURI IJ) in 3Q08 for Rp. 290 billion, Tunas Mandiri Finance (TUFI) has started to generate automotive loan for Mandiri. Their monthly booking has increased almost 75% from Rp. 130 billion per month in 1Q09 to Rp. 226 billion in 4Q09. As the result, their contribution to mandiri consumer loans increased by Rp. 300 billion to Rp. 1.9 trillion. Although their contribution to Bank Mandiri’s loan book is still small, we are sure that TUFI will deliver significant contribution for both Bank Mandiri bottom line and balance sheet, given bank’s mandiri wide network and availability of funds and Tunas Finance expertise.

Non Performing Assets : First time booked provision reversal
Bank Mandiri booked provision reversal in 4Q09 for the first time by Rp. 420 billion because of better than expected asset quality and to anticipate PSAK 50 & 55 implementation. The bank booked 2.79% NPLs in FY09, decline from 3.79% in 3Q09. It makes its provision coverage increased to 200.5% from 155.2% in FY08 despite of NPLs write backed in 4Q09. In addition, Garuda Indonesia’s loan, which had outstanding + Rp. 1.3 trillion in FY2009, has been paid Rp. 50.94 billion (5% of the Mandatory convertible bonds), while the remaining 95% will be converted into shares and be realized at the IPOs which is scheduled in 3Q10.

Conservative Loan Growth Guidance In 2010
Bank Mandiri management has targeted 15 - 18% loan growth, <4% NPLs, NIM 5.35% and > 150% provisioning coverage for FY10. We believe that those targets are too conservative since it set up in 3Q09 when the condition is not as bullish as nowadays. As the result, we increase our loan growth target to 20%, as well as conservative NPL target by 3% and 200% provision coverage

Reduce to HOLD (TP-Rp. 6.100,-)
Given its impressive FY09 result, management intention to shift to higher yield loan, plenty of room for loan growth and better economic condition, we believe that Bank Mandiri will be able to deliver its promise as a dominant multispecialist bank. However, given its stock price increasing too fast lately, we believe that the stock has priced near its intrinsic value. So, we suggested to HOLD with target price Rp.6100,-, implies 2.71-2.42X PBV or 16.38-13.23X PBV FY10-11E.