Bank Mandiri - TP Rp9100

Banks on retail help to ease margin pressure

Our View
􀂃 Bank Mandiri said early in the year that it would seek to increase its NIM by as much as 20bp from its 1Q11 level to 5.3% by YE11. It struggled to achieve this target in 2Q11 due to the following development. Mandiri holds the highest level of variable rate government bonds among peers (19% of IEA). In March the benchmark rate for this class of assets was changed from the 3‐mo SBI (yield: 6.37%) to the 3‐mo T‐bills (yield: 5.14%, and declining). The bank intensified its defence of the NIM pressure by increasing the portion of consumer lending in its asset mix. This segment is expected to cover
45% of its total loan portfolio by 2014, up from the current 29%.
􀂃 Inline with its plan to foster retail customers, Mandiri recently signed an agreement with BCA to link Mandiri’s ~9,000 and BCA’s ~8,000 ATM systems. This collaboration is part of the National Payment Gateway, the government’s scheme to connect the ATM networks of all national banks. This new feature would offer a source of additional fee income for these two giants. We also expect both banks to be more innovative in deposit products in order to prevent a mass exodus of depositors.
􀂃 We maintain our top BUY recommendation for Mandiri at TP of Rp9,100/share (14.9x 2012F PER; 2.8x 2012F PBV). It is a cheaper alternative than its closest peers, BCA and BRI; its current price implies an upside of 38% to its fair value. We keep our view that Mandiri will deliver an outstanding profit performance this year. Our earnings measures for Mandiri include the tax cut of five percentage points to 20% from 2011 onwards. Following a rights issue in early 2011, Mandiri’s capital will be adequate to support y/y loan growth of 22% for 2012F.


Source: KIMENG dated 12 December 2011