BMRI Meeting All Expectations - AAA

BMRI’s 1H11 net profit came in no surprise and everything was in good shape. The expectation of higher interest rate environment going forwards is beneficial for BMRI, as it can potentially widen its profitability margin. BMRI relatively high CASA (second after BCA) is not sensitive to the increase in the interest rate while it can enjoy the increase rate on the lending side.

± 1H11 Profit Gained 57% yoy, Higher Loan Growth Send NIM Upward
Loan expansion has pushed up BMRI’s net profit in 1H11 by 57% yoy, 33% qoq to Rp6.3 tn, which accounted for 51% of our full year estimates. Net interest income grew 32% yoy driven by interest income (mostly from loan expansion) that has gone up 27% yoy or faster than the increase in interest expense of 19% yoy. In turn, this resulted in higher NIM of 5.4% (from 5.2%). The fee- based income was up 74% yoy to Rp967 bn mainly from the recovery of Garuda (GIAA) bond. However, this gain was somewhat offset by the (GIAA) underwriting loss in BMRI’s subsidiary. Excluding the recovery income, net profit still respectably grew 35% yoy. The provisioning expense increased by 22% although NPL was down to 2.4%.

± Potentially Wider Profitability Margin Going Forward
Armed with higher CASA portion at 59% and corresponded with lower COF of 3.8% (or 20 bps lower), loan has expanded 26% yoy, higher than the expansion in funding side of 14% yoy. LDR stood at 76% from only 67% in 1H10, lessening the reserve requirement penalty by the BI. As with BBCA, BMRI will be the beneficiary of higher interest rate environment because CASA is less sensitive to the increase in interest rate while the bank can enjoy higher yield on the assets side that mainly consist (75%) of corporate and commercial loans. Further, BMRI’s NPL coverage ratio is still high at 172% indicating an adequate cover against the potentially higher NPL in high interest rate environment

± Valuation: Reiterate BUY, New TP Rp9,300
As 1H11 results is in line, we shift forward our TP to 2012 resulting in a new TP of Rp9,300 implying PBV of 3.2x FY12F. Currently Bank Mandiri is traded at 2.7x PBV FY12F, lower than its +1.5 std historical PBV at 3.5x. BUY.