Eka Savitri

Danareksa Equity Snapshot – BMRI, 15 November 2018 – We maintain our BUY call on BMRI with a higher GGM-derived TP of IDR8,700 (implying 2.07x 2019F P/BV) as we roll over our valuation to 2019F. Despite its strong corporate banking business, BMRI shall continue to expand into lower-risk retail lending segments such as micro for fixed-income earners and mortgages. Hence, the contribution from retail segments is expected to increase to 36.5% of the loans mix by December 2019F. The bank’s liquidity will remain sufficient given its status as a BUKU IV bank and SOE bank. However, the NIM should touch 5.3% next year due to an uptick in its blended CoF to 3.1%.

Expanding into lower-risk retail lending segments. Aside from its core corporate lending business, BMRI also seeks to grow its lower-risk retail lending segments such as the micro and consumer segments. For micro lending, BMRI will continue to push its salary-based loans for military personnel. As for mortgages, BMRI will continue to offer promotional rates for middle-class first-time home buyers. As such, we expect the bank’s exposure to retail lending to reach 36.5% of its loans book by December 2019F.

Well-balanced customer deposits structure. The bank’s customer deposits mix dominated by retail customers. As of September 2018, retail deposits were 61.9% of the total customer deposits, supported, we believe, by its strategy of tapping into prepaid card initiatives. For institution customers, meanwhile, BMRI offers comprehensive cash management services to grow its current accounts. Hence, we expect a slight change in the composition of the bank’s customer deposits by the end of next year with the retail deposits share edging up to 62.8% and the wholesale customer deposits share slipping to 37.2%.

Expecting a 5.3% NIM next year. We expect the bank’s NIM to decline to 5.3% next year owing to higher pressures on funding costs after policy rate hikes of 150bps in total. We therefore revise up our blended CoF assumption to 3.1% next year from 2.8%. In terms of asset yields, we only expect a slight uptick as we believe that BMRI’s management will generally reprice its lending rate for only its corporate borrowers. As for the retail segments, i.e. mortgages and micro, they are already mostly charged on fixed rate terms.

Maintain BUY, new TP of IDR8,700. We maintain our BUY call on BMRI with a higher GGM-derived TP of IDR8,700 (implying 2.07x 2019F P/BV) as we roll over our valuation to 2019F. Our GGM assumes a 9.0% CoE, 15.3% sustainable ROAE and 3% long-term growth.

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