BDMN:Funding remains a concern - Mandiri Sekuritas

The implementation of PSAK 50/55 has affected BDMN’s performance in FY10, particularly the net interest income. As there would be no more changes in accounting treatment this year, we expect better growth in net interest income this year, yet net profit would be slightly downgraded due to new calculation of impairment losses. We remain concerned with the bank’s funding cost due to possible liquidity drain in the banking sector post the implementation of new RR in Mar11. We thus maintain our neutral recommendation on the counter.

Better growth in net interest income this year.... We project better growth in net interest income (NII) of 8.4% yoy this year (vs 4.7% yoy in FY10) due to: (1) no more changes in accounting treatment. The PSAK 50/55 has been fully implemented in FY10, which resulted in lower growth in NII as the bank has to take into account the acquisition cost (booked by ADMF) to the bank’s NII. (2) 21% yoy loan growth this year. These loans will particularly be derived from mass market segment (including ADMF). Mass market contributed 57.9% of total loans at end Dec10, a significant increase from 53.9% at end 2009.

Concerns over funding remain. We estimated that BDMN had around Rp14tn of excess liquidity at end Dec10, which was mainly placed with BI (both FASBI and SBI). We noticed the bank’s efforts to build up its liquidity position during the year, as reflected in the significant decline in the government bond holding from Rp11.0tn at end 2009 to Rp6.1tn at end 2010. Furthermore, around Rp2.8tn of the government bond it held was placed under repurchase (repo) agreement. Additionally, the bank has also aggressively expanded its funding (+18.1% yoy in FY10) to finance its 30.6 % yoy loan expansion during the year. Assuming Rp16.8 tn of additional loans this year (+21.0% yoy), BDMN has to grow its deposits by at least 20% yoy to maintain its current liquidity position, which might be difficult to achieve given the liquidity tightening measures adopted by BI (please note that placement in SBI fell by 34.3% yoy in 2010 to Rp139tn). Such measures might pose some threat to BDMN which relies heavily on TD (TD accounted for 39.3% of total loans at end 2010).

Maintain neutral. Despite positive adjustment in NII, we slightly downgraded our net profit forecast due to impairment loss treatment. Despite that, we maintain our TP at Rp6,300/share as we remain concerned with the macro economic outlook which might affect the bank’s performance this year. At current price, the stock is trading at 2011F P/BV of 2.6x and PER of 15.6x. We maintain our neutral recommendation on the counter.