Corporate Result Flash Bank Mandiri - Bahana

4Q10 performance
§ Lower provisioning charges of IDR720b in 4Q10 (vis-à-vis IDR1.1t in 3Q10) allowed net profit to grow 20.5% q-q and 11.7% y-y to IDR2.8t, bringing BMRI’s FY2010 net profit to jump 28.8% y-y to IDR9.2t, 6% and 5% higher than our and consensus estimates respectively. Additionally, net interest income grew 2.9% q-q and 24.9% y-y on the back of strong loan growth despite NIM contraction to 5.5% in 4Q10 from 5.7% in 3Q10.
§ 4Q10 loans grew 6.2% q-q, bringing 24.0% y-y loan growth to IDR246t. Gross NPL improved to 2.2% in 4Q10 from 2.4% in 3Q10.
§ Third party funding grew 12.8% q-q with core deposit growth 10.0% q-q. This brought 13.4% y-y growth and LDR to 68.0% from 72.2% in 3Q01 and 62.1% from a year earlier.

Outlook
Low LDR combined with strong capital base (post rights issue) should enable the bank to foster its loan growth, targeting at 25% in 2011 vis-à-vis 23.2% our assumption. On a more negative note, BMRI has carried government recap bonds worth IDR82t, of which 97.3% are in variable rate, tied to the 3-month T-Bill at only 5.19% vis-à-vis 6.36% 3-month SBI previously. This might dampen growth in net interest income.

Recommendation and valuation
We continue to like BMRI on its improved asset quality and ability to expand its earnings asset portfolio, allowing earnings to grow 30.5% y-y in 2011. Additionally, recovery from Garuda’s NPL through recent share divestment has brought in capital flow of around IDR1.4t. Despite the recent rally in the share price, BMRI’s valuation remains attractive, trading on 2.5x 2011 P/BV. Hence, we retain a BUY on the counter with target price of IDR7,500.