PT Bank Mandiri (Persero) Tbk After Rights, Traded at Bargain - AAA Securities

Bank Mandiri ended FY10 with everything inline with the expectation. However, there are recently some positive news to BMRI which will could be the earnings surprises of its 2011F performance. After rights, BMRI is traded only at 2.8x PBV with ROE remain solid at 25%. BUY

± Solid ROE and Lower NPL
Bank Mandiri recorded FY10 net profit growth at 29% yoy to Rp9.2 trillion, only slightly deviated by 2% with our estimates and 5% vs. consensus. Higher growth in net profit than the equity (+18% yoy) has sent ROE to 24%, the highest level ever recorded in BMRI’s history. Meanwhile NPL pushed down to 2.4% with 192% coverage ratio, indicating that under the new captain on the ship, the bank is not losing its grip to alleviate NPL.

± No Surprise in 2010, But What About 2011?
Overall, nothing is surprising with the bank’s good FY10 performance, as most number came within our and market expectation, which explained why its price has only climbed by 5.4% ytd vs. BBRI 18.1% ytd and peers 9.8% ytd. However, rolling into 2Q11-4Q11, we see positive things on BMRI that could be the factors of the earnings surprises. 1) Rajawali and Djarum Group are reported to acquire Garuda Indonesia via private placement, reducing the loss in BMRI’s securities subsidiary. 2) Government is speeding up haircut lending bill which is targeted to be ratified this year. 3) Low cost funding that derived from low LDR could create pricing competitiveness.

± Valuation, BUY – New TP Rp8,500
We have factored in the rights issue effect on BMRI’s FY11F financials, which will lift CAR ratio (including operational risk) to 15% from 13%. However, to maintain CAR, we cut our dividend payout assumption from 35% to 30%. And upon to rights issue adjustment, we also increase our net income FY11F from our previous estimate by 11%, thus we augmenting our TP from Rp8,200 to Rp8,500 (Gordon Growth Methodology). Our TP reflects 3.5x PBV FY11F which is at par with its historical valuation. Currently the bank is traded at a very attractive valuation at only 2.8x PBV. BUY recommendation remains intact.