CLSA Bank Mandiri (BMRI IJ) 1H10 results in line but slightly ahead of consensus by Bret Ginesky

Mandiri posted its 1H2010 results last Friday afternoon. Net profit of Rp2tn is 28% YoY growth but flat QoQ. Results are is in line - 44% of our FY forecast (2H tends to be stronger).

Good points are continued strong QoQ loan and deposit growth at 8% and 4% respectively – Note worthy would be the strong saving and demand growth at 5% and 6% QoQ. Goal of the bank is to boost its CASA from the current 57% to 65% of total deposits in the next few years.

Weaker aspect of the result would be higher operating cost boosting the cost to income ratio to 53% but this mostly be a one off.

Mandiri has also managed to comfortably surpass the L/T target of 20% ROE target for four consecutive quarters. Another noteworthy achievement.

Overall, not too many surprises for BMRI. Bret raises his TP to Rp7,000 and retains BUY. However, we think that with upside now limited to 15% for the stock, investors should take a second look at Bank Rakyat (BBRI IJ). BRI has stronger earnings growth at 20% and is trading at 10.9 x2011 PE with 29% ROE. Asset quality concerns appear overblown.

We also recommend investors to look at Bank Negara (BBNI IJ) at 1.9x P/B and small cap Bukopin (BBKP IJ) at 1.2x consensus book.

Key points:
· Mandiri’s 2Q10 results were in line with our forecasts and ahead of consensus – net profit of Rp2.0tn was flat QoQ but up 28% YoY. 1H10 net profit of Rp4.0tn, up 38% YoY represents 44-47% of our and consensus FY10 estimates. Overall, we find the results mixed, with the positives offsetting the negatives.
· Loan growth was impressive at 8%QoQ and 20% YoY, with growth reported in all segments, but fuelled by higher yielding consumer and micro loan growth. Net interest margin (NIM) improved by nearly 10bps to 5.2% QoQ
· Operating costs increased 29% QoQ, impacted by higher provisions for non earnings assets and higher other expenses. The rise boosted the cost to income ratio (CIR) as reported to 53% in 2Q10. We expect the CIR to revert lower in 2H10 as revenues remain strong.
· At 2.6x 11CL PBV, Mandiri has additional upside with an ROE that has surpassed 22% and is rising. BMRI is well positioned to exceed estimates given its asset sensitive balance sheet and expected recoveries (Garuda, Domba Mas) in 2H10. We maintain our Buy rating and are increasing our target price to Rp7,000 based on 11CL PBV of 3.0x