Citigroup Bank Mandiri - Q1 2010 Results: Yields under

 Meeting Expectations — The Q1 profit of Rp2Trn is c~25% of Citi and consensus FY forecast. The key highlights of Q1 performance are 1) declining asset yields, 2) lower fee income from both subsidiaries and own operations, 3) rising admin costs and 4) sharp decline in credit cost partly offset by other provisions. In our opinion, the 43% growth in profit (y-o-y) is unlikely to excite the market. We maintain our Buy on BMRI as a structural improvement play. Management endeavors to build Consumer/Retail/Micro Finance business will add to cost and are likely to put pressure on earnings, particularly in a low-yield environment.

 Income Trend — Mixed trend with Gross Income up y-o-y but down q-o-q and vice versa for Pre-Provision Income. NII increased by 1% (q-o-q) and 5% (y-o-y) supported by loan growth as NIMs declined in Q1 CY10 to 5.1%. Fee income declined q-o-q but is up y-o-y. Operating expenses are up 24% (y-o-y), down 10% (q-o-q), driven by higher human resource cost and occupancy charges. Preprovision profit shows a 2% decline (y-o-y) and 3% rise (y-o-y). Provision amount of Rp692bn includes loan loss provision of Rp420bn (credit cost of 0.8%). Management guidance is that the loan loss provision will remain at these levels while other provisions are expected to come down.

 Balance Sheet Management — Loan growth of 2% (YTD) was funded by existing liquidity. With the seasonal deposits decline, LDR has gone up to 64%. CAR is at 16%, even with the partial inclusion of operation risk. NPL ratio declined due to write-off, as existing loans had net downgrades. Accounting changes have led to classification of SBIs as securities and management has shifted some variable rate govt bonds from HTM to AFS, to have flexibility to sell/repo for liquidity.

 Management Change and Rights Issue — Not discussed in the Briefing as management stance is that the decision is with the Minister and Parliament.