Ex Bank Rakyat Indonesia (BBRI) & Bank Mandiri (BMRI), sector profits grew 12.6% y/y in 1Q: 3 Banks under our coverage, BBRI, BMRI &Bank Danamon ( BDMN), declared 1Q results today, bringing 1Q results season to a close. Overall 1Q net profits were colored by BMRI (1Q recoveries) & BBRI (4QFY10/1QFY11 accounting change). Excluding these two banks, aggregate sector profits grew by 12.6% y/y. We see these as generally below par with sector (ex BBRI/BMRI) 1Q profits at just 22.5% of FY11E consensus.
BRI grew loans at19% y/y in 1QFY11. Net profits at Rp 3.26 trn were up 51% y/y.
These results were almost exactly in line with our forecasts, which envisaged Rp
3.26 in profits – although in reality tax rates were a bit lower than we anticipated.
These results were almost exactly in line with our forecasts, which envisaged Rp
3.26 in profits – although in reality tax rates were a bit lower than we anticipated.
Other underlying metrics like NPLs (3.0%) and margins (NIMs at 9.67% remained
healthy).
Analyst Meet Highlights
• BBRI's high-margin businesses continue to drive growth. Micro and Consumer
loans (excluding KUR) accounted for 50% of total loans - the first time they have
reached that level since FY06.
• BRI’s management has also worked to modify the KUR scheme, which now
operates with a separate architecture. We no longer see signs of cannibalization
or poor asset quality among KUR loans (1Q NPL’s 2.3% compared to 6.7% in
1QFY10).
• Overall NPLs stood at 3.0%, with small commercial loans (SMEs) the only
segment seeing a meaningful increase in NPLs (from 5.1% to 6.5%).
Management said that they would endeavor to bring NPLs in all segments to
below 5% by 3QFY11.
• We were also interested to note the evolution of BRI’s urban micro lending foray,
the BRI Teras sub-units. Rather than lending hubs, these outlets are developing
into transaction nodes for traders –payments, transfers, etc. and consequently are
generating deposit growth. At the end of March, BRI’s 657 Teras units were
operating at a 31% LDR, with deposits growing faster than credit. It appears that
Teras is evolving into an avenue for micro banking rather than micro lending.
• In a marked turnaround from 12 months back when we were concerned about a
slowing in the micro business, we worry if rapid growth could develop into a risk.
Micro lending grew at 33% y/y in 1Q. 1QFY10 was the low point for the
segment, and q/q growth (2.6%) remains reasonable – but this is an area that
bears watching and could pose a risk to our PT.
Bank Mandiri
BMRI declared 1Q profits of Rp3.8 trn, much higher than our Rp2.5 trn forecast.
Results were boosted by a Rp 1.87 trn collection of written-off loans, including
outstandings from Garuda. Adjusted for recoveries, we estimate net profits at Rp 2.3-
2.5 trn, which would be in line/slightly lower than we expected. Detailed financials
are not yet available.
Analyst Meeting Highlights
• BMRI’s loans grew by a hefty 25% y/y. Corporate loans grew at 14%, while all
other segments registered growth of over 30% y/y. On a like-for-like basis, we
estimate that Net Interest Income grew a little more than 7% y/y.
• Margins were under pressure. BMRI reported that NIMs declined almost 70bps
q/q to 5.1%. Asset yields declined by almost 100bps during the quarter,
precipitating the margin drop. Management reiterated their target of a 530 bps
full-year margin, and expressed some confidence that it remained achievable
while admitting that it was a challenging task, given that yields on variable bonds
could decline by 120bps in 2Q.
• Recoveries: Recoveries were the big driver of the 2Q earnings surprise. BMRI
reported cash recoveries of Rp1.87 trn, including a settlement from Garuda.
Management said that in coming quarters, they expected to maintain a Rp200bn
run rate on recoveries, which could be boosted if legal proceedings against some
legacy debtors came to a successful conclusion.
• Asset Quality: Although downgrades in 1Q rose to a 2% annualized rate,
management did not appear particularly ruffled. Downgrades were dominated by
a single corporate customer and a large SME client, which has been restructured and could potentially return to health in due course. Overall NPLs stood at 2.6%
(up 18bps q/q).
• Management also noted that revisions to the law on state assets were due to be
presented to Parliament soon, which could be a source of flexibility for stateowned
banks in offering haircuts to debtors. However, they do not expect to use
any such flexibility across the board, instead focusing on offering concessions to
segments like SMEs and natural disaster-impacted debtors.
In advance of detailed financials it is difficult to gauge the direction and extent of
likely revisions to consensus earnings – although it is clear that 1Q earnings
trajectory is likely unsustainable. We continue to like BMRI, with a Rp7,800 DDMbased
Dec-2011 PT. The key risk is if margin compression witnessed in 1Q
continues and puts forecasts and our PT under risk.
Results were boosted by a Rp 1.87 trn collection of written-off loans, including
outstandings from Garuda. Adjusted for recoveries, we estimate net profits at Rp 2.3-
2.5 trn, which would be in line/slightly lower than we expected. Detailed financials
are not yet available.
Analyst Meeting Highlights
• BMRI’s loans grew by a hefty 25% y/y. Corporate loans grew at 14%, while all
other segments registered growth of over 30% y/y. On a like-for-like basis, we
estimate that Net Interest Income grew a little more than 7% y/y.
• Margins were under pressure. BMRI reported that NIMs declined almost 70bps
q/q to 5.1%. Asset yields declined by almost 100bps during the quarter,
precipitating the margin drop. Management reiterated their target of a 530 bps
full-year margin, and expressed some confidence that it remained achievable
while admitting that it was a challenging task, given that yields on variable bonds
could decline by 120bps in 2Q.
• Recoveries: Recoveries were the big driver of the 2Q earnings surprise. BMRI
reported cash recoveries of Rp1.87 trn, including a settlement from Garuda.
Management said that in coming quarters, they expected to maintain a Rp200bn
run rate on recoveries, which could be boosted if legal proceedings against some
legacy debtors came to a successful conclusion.
• Asset Quality: Although downgrades in 1Q rose to a 2% annualized rate,
management did not appear particularly ruffled. Downgrades were dominated by
a single corporate customer and a large SME client, which has been restructured and could potentially return to health in due course. Overall NPLs stood at 2.6%
(up 18bps q/q).
• Management also noted that revisions to the law on state assets were due to be
presented to Parliament soon, which could be a source of flexibility for stateowned
banks in offering haircuts to debtors. However, they do not expect to use
any such flexibility across the board, instead focusing on offering concessions to
segments like SMEs and natural disaster-impacted debtors.
In advance of detailed financials it is difficult to gauge the direction and extent of
likely revisions to consensus earnings – although it is clear that 1Q earnings
trajectory is likely unsustainable. We continue to like BMRI, with a Rp7,800 DDMbased
Dec-2011 PT. The key risk is if margin compression witnessed in 1Q
continues and puts forecasts and our PT under risk.
ANalysis by JPMorgan