CLSA Bank Danamon (BDMN IJ) Earnings Recap, from Bret Ginesky

Bank Danamon reported after the market closed yesterday and they were ahead of our expectations and well ahead of consensus. Net profit of Rp701bn was 24% of our FY10 estimate of Rp2.97tn, whereas 1Q is seasonally the slowest quarter of the year. We will review our recommendation and earnings forecast in our follow up note, both are under review.

1Q10 earnings of Rp701bn were up 65% YoY fueled by a 12.6% NIM and YoY revenue expansion of 24%. The COF decreased to 5.4% as the longer maturity time deposits matured, we do not anticipate any more COF improvements in 2010.
Provisions decreased from 2H09 levels as we anticipated, and no extraordinary items were recorded.
Loan growth is starting to ramp up, the bank booked Rp1tn in loans in the month of march alone and the pipeline is robust. Overall QoQ loan growth was up 2%, a solid figure given seasonality impact.
From indications, it appears Henry Ho will be introduced as the new President Director on April 29. This is not confirmed.
ROA and ROE improved to 2.9% and 18% in the period while NPL's decreased to 4% from 4.5% in 4Q09.
Overall the results were solid and ahead of estimates. We expect slight upward revision to our forecast and we note that we were already 10% ahead of the street. We expect larger earnings revisions of street estimates.

CLSA Bank Mandiri (BMRI IJ) FY09 results, from Bret Ginesky

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.