Prasetya Gunadi, Willy Suwanto | BCA Sekuritas

Fact: Other operating income supported earnings in FY18

· Net 4Q18 profit: IDR6.9tn (+24.3% YoY, +17.1% QoQ). This brings total 12M18 net profit to IDR25tn (+21.2% YoY), representing 104% of our and consensus’ FY18 estimate. Non-interest income grew solidly, to IDR9.6tn in 4Q18 (+52% YoY/+35% QoQ), supported by an increase in earnings from subsidiaries (+16.4% YoY), cash recovery (+35.7% YoY), and capital gains earned from selling its stakes in MAGI (40%, for ~IDR140bn) and Bank Mantap (~IDR300bn). 4Q18 provisioning charges were still manageable, at IDR3.4tn (-6.4% YoY, +18% QoQ). This offset 4Q18 NIM pressure, which slid to 5.7% vs. 5.9% in 4Q17, against 5.8% the previous quarter.

· Loan growth accelerated to 12.4% YoY in Dec-18. Total loan growth reached 12.4% YoY in Dec-18, supported by all segments posting above 11.5%, notably the corporate segment, which grew by 24.1% YoY. However SME & middle corporate continued to contract, as of Dec-18. On the funding side, savings accounts exhibited the finest growth, at 9.6% YoY, followed by demand deposits, up 8.8% YoY, which supported total deposit growth of 7.2% YoY in Dec-18. Slow funding growth led to higher LDR ratio, at 97.5% in Dec-18 vs. 94.0% in Sep-18 (89.4% in Dec-17). CASA ratio of BMRI remained relatively flat at 64.1% in Dec-18 (Sep-18:64.5%, Dec-17:66.2%).

· NPL displayed a solid figure of 2.75% in Dec-18. Asset quality followed a positive trajectory in Dec-18, NPL ratio recording lower, at 2.75%, compared to 3.01% in Sep18 and 3.46% a year earlier, supported by a IDR2.4tn write-off in 4Q18. SML ratio also revealed a positive trend, down to 4.0% in Dec-18 vs. 4.5% the previous quarter.

Outlook: Loan acceleration to persist following NPL relief

Going into 2019, BMRI expects softer loan growth of 10%-12%, with corporates will still the main driver, in line with our overall view of the banking sector in 2019. In terms of margin, we expect to see relatively flat compared to last year, attuned to a more aggressive BMRI strategy, pumping loan yields, especially for foreign exchange loans, tracking the increase in COF last year. In terms of asset quality, we expect BMRI will be able to shave its NPL ratio further (10-20bps) as it still has room for write-offs in 2019 (IDR9tn) vs. IDR13.2tn in 2018.

Possibility of acquiring Bank Permata (BNLI)

On a separate note, the Company admitted a lingering steep CAR ratio of 21% as of Dec-18. BMRI could spend up to IDR30tn to acquire a bank and still have ample CAR ratio of ~16% comfortably above OJK requirements. There has been speculation over the last few days that BMRI will acquire the 89.12% stakes of both Standard Chartered and Astra International (ASII) in Bank Permata (BNLI). If we assume this information is accurate, the max amount that BMRI would be willing to pay for the acquisition would be around IDR30tn; using BNLI’s BVPS of IDR816.5 in 2019, this would imply a top PBV of 1.5x for the acquisition of BNLI. Consolidation impact, however, may not translate to significant earnings accretion.

Recommendation: Re-iterate BUY with maintained TP of IDR8,300

Following solid performance in 4Q18, we maintain our BUY call, with TP of IDR8,300 based on 2.0x 2019F PBV. We continue to favor BMRI, as its strong loan growth will remain intact through 2019F, with room remaining to clean up its NPL ratio. Note however how its YTD share price performance has underperformed JCI by ~3%, as based on our calculation the consolidation of BNLI and BMRI would actually cut BMRI’s NIM by ~50bps, worsening its NPL by around 20bps, hence dampening ROE by around 1.1%.


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