Bank Mandiri: Hold; Rp7,100; TP Rp7,100; BMRI IJ Declares 35% dividend payout and proposes to acquire a general insurance business - DBS Vickers

In BMRI’s AGM yesterday, shareholders approved a 35% dividend payout (amounting to Rp3.2trn) or Rp138.27 per share. This is inline with our estimates. The dividend payout is higher than BBRI’s 20% dividend payout and BBTN’s 30% dividend payout. However, we believe BMRI’s 35% dividend payout is reasonable given its stronger capital position post rights. BMRI completed its rights issue back in Feb-11 which raised up to Rp11.7trn and improved its total CAR to 18% post rights. BBNI has yet to finalise its dividend payout, pending its AGM on 27 May.

Separately, BMRI’s shareholders gave their approval for the management to acquire general insurer PT Asuransi Dharma Bangsa (ADB). Currently, the insurer is jointly-owned by Dana Pensiun Bank Mandiri I and PT Estika Yasakelola. After securing the shareholders’ approval, BMRI plans to get permissions from local authorities, including Bank Indonesia and Bapepam. The acquisition will be completed by 3Q11.

In March, Bank Mandiri and French insurance company, AXA S.A had signed an agreement to buy stakes at ADB. The agreement mentioned that BMRI will purchase 120,000 shares of the 126,718 new shares issued by ADB, while AXA S.A. will purchase the current 73,282 existing shares and the remaining 6,718 new shares. Upon the completion of this transaction, BMRI will become majority shareholder with 60% shareholding and AXA will hold the remainder 40% stake. With this acquisition, BMRI should be able to gain market share in the insurance business, as insurance penetration in Indonesia is still relatively low. This would also complement BMRI’s financial services portfolio, functioning as a universal bank.

No change in our recommendation – Hold, TP Rp7,100. BMRI is likely to face NIM pressure in the near term after re-pricing its variable rate government bonds. While it appears challenging to achieve its 5.3% NIM target, in our opinion, BMRI stated that they will continue to leverage on its transactional banking platform and business banking base (to gather more CASA) to keep cost of funds low as well as leverage on its growth for higher yielding loans (micro and consumer). BMRI could also gear up its loan-to-deposit ratio, which currently stands at 70% from the excess liquidity it carries in its balance sheet. BMRI could be re-rated if the government passes regulations to allow state-owned banks the liberty and flexibility to undertake bad debts cuts on state-owned enterprise loans and the amendment to the land acquisition bill. These proposals are pending Parliamentary approval.