Headlines:
l 1Q10 NPAT rose 78% YoY to Rp701bn thanks to a 28% YoY increase in net interest income coupled with stringent and effective cost management. On a QoQ basis, the strong earnings are attributable to the absence of an extraordinary item related to derivative transactions –reaching Rp218bn in 4Q09 alone. Without derivative related provisions, NPAT grew 81% QoQ. Loans growth remains weak, however, with loans growing a mere 1% QoQ.
l The NIM eased to 12.6% from 4Q09’s 13.4%, largely due to reclassification of acquisition costs from previously deducting fee income to now deducting interest income. NPLs declined slightly to 4.0% from 4Q09’s 4.5%, with the largest NPLs still contributed by the micro lending business. Provisioning coverage remains above 100%.
l CAR is strong at 21.5% prior to implementation of the Basel II Accord on operational risk. With operational risk taken into account, the CAR declines by 1.76% to 19.7%. Meanwhile, the ROAE improved to 18.0% from 1Q09’s 14.4%.
Comments:
l In short, no surprises. Worth noting, however, is reclassification related to implementation of IFRS. This has led to a decline in interest income and hence the asset yield. Indeed, the asset yield dropped by 130bps from 4Q09’s 18.3%, more than offsetting the 60bps decline in quarterly COF. NIM therefore eased, although it is still higher than 1Q09’s 10%. As for the remainder of the year, the bank’s guidance is for NIM of around 11-12%.
l Profitability is strong, with the bank posting its largest ever quarterly profits. Derivative related provisions are no longer an issue and the bank posted a huge increase in ROE despite last year’s rights issue. All in all, the bank is looking for 20% ROE by the end of the year.
l Non-recurring items aside, higher profits are also attributable to a lower cost of credit of Rp578bn in 1Q10 compared to 4Q09’s Rp762bn besides better cost management that has led to a decline in the cost-to-income ratio to 48% from 4Q09’s 51%. Note that operating income related to the mass-market business increased by 2% YoY even though the bank aggressively grew its mass market business – an effective and efficient strategy.
l Loans growth is still lacking, but optimism remains. This year, the management is looking for 20% loans growth. Among the segments, growth was only seen in the mass market segment with the other segments showing a QoQ decline in loans growth. However, the prospects for further lending remain bright - especially for SME and commercial loans, according to the management. The mass-market business grew 5% QoQ, backed by strong auto financing and micro lending. It now accounts for 56% of the bank’s total loans portfolio. The idea is for the bank to sustain its high asset yields but with loans of a longer duration.
l Funding could be a concern in the near term, we believe. Deposits have not grown as expected, despite a better deposits structure. Yes, low cost CASA now represent around 35% of the total deposits thanks to retirement of costly deposits amidst improving liquidity. However, this may not last, especially since the LDR has reached 94%. As such we expect the proportion of time deposits to increase in the next 1-2 quarters before easing in the last quarters of the year. Note that deposits fund 89% of BDMN’s total lending. The remainder comes from bonds, REPO and other LT borrowings.
l We keep our forecast intact for now. BDMN remains our top pick in the sector given: 1) its strong capital base with the CAR expected to reach 19% by YE10, 2) a robust NIM in excess of 13% and 3) potentially solid loans growth post the clean-up of its balancesheet. Our DDM derived TP is Rp6,850, implying 3.3x-3.0x FY10-11E PBV.
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