Bank Mandiri posted impressive results this evening for FY2009 with a headline Net profit of Rp7.2tn or 35% higher than FY2008. By our estimates, 2009 core net income of Rp6.8tn increased 40% YoY after adjusting for non core items, and 2% above our estimate and 7% above consensus.
Key takeaways:
1. Higher earnings were fueled by solid fee income growth (+22%) and the banks ability to lower provisions (as gross NPL's decreased to 2.79% from 4.73% YoY). In addition, by releasing provisions at YE09 the bank will see a benefit to its CAR and earnings. This is a positive as provisions would have been lowered under PSAK in 2010. If the bank had been forced to lower its provision under PSAK 55 the benefit would not impact CAR (currently 15.4%) or earnings. We believe taking this writeback was a keen move by management.
2. Solid fee income drove earnings higher, with YoY growth of 22%, as the bank continues to show traction in cross selling products to its customer base. The fee ratio moved to 25% from 23% YoY.
3. The NIM decreased by 23bps YoY mainly due to the yield on the securities portfolio. We expect this portfolio to remain a drag on the NIM while rates remain at historic low levels. Loan growth in 2010 north of 20% should more than offset this impact.
4. Loan book grew by 13.8% as was previously reported. This was below our full year estimate for 2010. Management’s loan growth guidance of 15-18% was compiled in September. This means that it is conservative and too low given the growth Indonesia has seen in the last 6 months on GDP forecast and outlook. We expect loan growth will be north of 20% in 2010.
5. ROE and ROA continue to improve as management adds value to shareholders. The bank is on target to reach our ROE targets north of 20% for 2010.
We are reiterating our Conviction Buy call with a 12-month target price of Rp5800/share. We are not making any revisions to our earnings estimates at this time, and will address this in a follow up note.
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