Bank Danamon (BDMN IJ) 1H11 Results Review: Profitless Growth? - CLSA

Dewi from CLSA Jakarta research team looked at BDMN results. 1H11 net profit increased by only 3% YoY to Rp1.5tn, representing 41% of 11CL and 42% of consensus estimates. All ratios were weaker on both QoQ and YoY basis. No rights issue details were announced.

Adira Finance (ADMF IJ) continues to be the main growth contributor QoQ. As of 1H11, ADMF is now 38% of BDMN's loan book, compared to 27% just 2 years ago. BDMN management indicates ADMF Finance will be growing along with car and motorcycle sales growth, which hovers at 10-15%. Sounds conservative compared to ADMF management guidance of 20-30% growth. As of 1H11, ADMF has met 48% of full year's target, indicating that ADMF’s target will be comfortably achieved by end of year.
Management expects loan to grow slightly above the industry and NIM to improve by 25-50bps from 1H11 NIM. Supported by ADMF growth, agree that loan will grow slightly above the industry. To improve their NIM, management intends to build funding franchise. We don't think this will result in quick NIM turnaround since asset yields for ADMF are decreasing faster than CoF. Moreover, ADMF acquisition cost has increased from 5-6% to 6-8%, further suppressing the NIM.
While loan growth will remain robust, profitability will be further suppressed due to competition (lower interest rate and higher acquisition cost). BDMN is currently trading at 2.2x and 11.4x 12CL PBV and PE, in line with Indo peers average.