汇丰银行印尼银行业BankMandiriPerseroTbkHoldCreditcostdriven

Disclosures&DisclaimerThisreportmustbereadwiththedisclosuresandtheanalystcertificationsintheDisclosureappendix,andwiththeDisclaimer,whichformspartofit.MCI(P)126/02/2017MCI(P)069/06/2017Issuerofreport:TheHongkongandShanghaiBankingCorporationLimited,SingaporeBranchViewHSBCGlobalResearchat:|FindusonAppStoreandGooglePlay✔VoteinAsiamoneyBrokersPoll2017starts6thJuly|ClickheretovoteAssetqualityisclearlyonthemendBMRIhintsatpotentialcapitaldeploymentaheadWerateBMRIHoldwithanIDR10,900targetprice2Q17withinexpectationsandearningsshouldpickupfurther.Afterdecliningsteadilyfrom3Q16to1Q17,totalincomereboundedandrose2%q-o-qand7%y-o-y.DespitePPoPrisingbyonly1%q-o-q,netprofitwasup32%q-o-qthankstoabigimprovementincreditcost.Weconsidertheresultstobein-linewithexpectationseventhoughannualizednetprofitisonly82%ofourfullyearforecastasweexpectearningstopickupinsubsequentquarters.Top-linetrends.Aftercontractingmarginallyin1Q17,creditgrowthreboundedwithtotalloansup4%q-o-q.Despitethis,netinterestincomewasflatq-o-qasNIMslipped9bpq-o-qto5.58%.ThismarksthethirdstraightquarterofNIMslippage.Onabrighternote,BMRIdidstatethatlendingratesareunlikelytofallfurther.Totalincomewasliftedmainlybytradingprofits.Assetqualityonthemend.Managementstatedthatcreditdowngradeshavepeakedin2Q17whileslippageintherestructuredloanportfoliohasbeentrendingdownfromitspeakof13.9%in4Q16to3.6%in2Q17.OverallgrossNPLhasbeentrendingdownfortwostraightquartersandisnowat3.82%(1Q17:3.98%).Moreimportantly,totalstressedloanscomprisingNPLs,specialmentionloansandrestructuredloansimprovedto11.85%from13.13%in1Q17.BMRI’sloanlosscoveragelevelof136%isalsoclosetoitstargeted140%mark.Managementhintedatpotentialforcapitaldeployment.BMRIbelievesthatitsTierIwillhoveratc.20%assuming13%-15%creditgrowthp.a.and40%-50%dividendpayoutratio.Currently,itsbank-levelTierIishoveringat19.7%.ItstatedthatitsoptimalTierIlevelinthelongtermshouldbeatc.17%.Ithopestoreachthislevelin3-4yearsthrougheitherorganicorinorganicgrowthordividendpayments.At17%TierI,BMRIwouldhaveexcesscapitalofIDR20tn(IDR868/share).Nochangeto2017guidance.BMRIisguidingfor11%-13%loangrowth,60-70bpNIMslippagefrom2016,grossNPLof3.5%-4%andcreditcostof2.5%-2.7%.MaintainHold.BMRIisup8%YTD,in-linewiththeJCI.Ittradesat1.9xDec2017eBVand13x2017eEPSonourearningsforecastswhichare27%aboveconsensus.Atcurrentlevels,thestockisclosetoitsaveragehistoricalvaluationmultiples.Untilthebankisabletodeliversustainedearningsimprovementsbeyond2Q17,webelievefurtherstockpriceupsidewillbecapped.19July2017MAINTAINHOLDTARGETPRICE(IDR)PREVIOUSTARGET(IDR)10900.0010900.00SHAREPRICE(IDR)UPSIDE/DOWNSIDE13525.00-19.4%(asof18Jul2017)MARKETDATAMarketcap(IDRb)315,583Freefloat40%Marketcap(USDm)23,711BBGBMRIIJ3mADTV(USDm)19RICBMRI.JKFINANCIALSANDRATIOS(IDR)Yearto12/2016a12/2017e12/2018e12/2019eHSBCEPS591.71057.61232.11310.1HSBCEPS(prev)----Change(%)----ConsensusEPS673.6843.41065.01244.2PE(x)22.912.811.010.3Dividendyield(%)1.72.02.32.4P/NAV2.21.91.71.5ROEinc.gwill(%)10.315.516.015.152-WEEKPRICE(IDR)Source:ThomsonReutersIBES,HSBCestimatesKarWengLoo*SeniorBanksAnalyst,SEATheHongkongandShanghaiBankingCorporationLimited,[e-mail][phone]XiushiCai*BanksAnalystTheHongkongandShanghaiBankingCorporationLimited,[e-mail][phone]*Employedbyanon-USaffiliateofHSBCSecurities(USA)Inc,andisnotregistered/qualifiedpursuanttoFINRAregulationsBankMandiriPerseroTbk(BMRIIJ)EQUITIESCOMMERCIALBANKSIndonesia9300.0012150.0015000.0007/1601/1707/17Targetprice:10900.00High:13575.00Low:9850.00Current:13525.00Hold:Creditcostdrivenearningsreboundin2Q17EQUITIES●COMMERCIALBANKS19July20172Yearto12/16a12/17e12/18e12/19eIncomestatement(IDRbn)Interestincome76,71082,20385,67790,124Interestexpense(24,885)(27,105)(28,633)(30,255)Netinterestincome51,82555,09857,04459,869Netfees&commissions11,44013,38514,45615,323Otherincome8,0679,0559,78010,366Totalincome71,33377,53881,28085,558Operatingexpense(31,268)(33,638)(35,993)(38,152)Pre-provopprofit(PPOP)40,06543,90045,28747,406Provisioncharges(21,452)(11,832)(7,922)(7,922)Associates&amortization----Non-opitems(40)303030Profitbeforetax18,57332,09837,39539,513Coreprofitbeforetax18,57332,09837,39539,513Taxation(3,923)(6,420)(7,479)(7,903)Minorities+preferences(844)(1,001)(1,167)(1,043)Attributableprofit13,80724,67728,75030,568Coreearnings13,80724,67728,75030,568Balancesheetsummary(IDRbn)Ordinaryequity150,454168,962190,524213,449Customerloans(Net)629,068686,937755,337831,018Investmentinsecurities155,485163,119171,358180,259Customerdeposits762,501808,251856,746908,151Debtissued9,2419,2419,2419,241Interestearningassets940,8571,010,0101,085,5451,165,696Interestbearingliabilities835,945886,469940,199997,352Totalassets1,038,7061,111,2091,190,2611,274,105Capital(%)RWA(IDRbn)643,379688,950737,962789,945Tier119.721.122.624.0CAR20.822.123.524.9Persharedata(IDR)EPS5921,0581,2321,310DilutedEPS5921,0581,2321,310DPS226264308328NTA6,1916,9847,9098,891BV6,4487,2418,1659,148Valuations