BUY TP: Rp9,200 (+19.1%) Bank Mandiri Credit cost continue to normalize Sector Bloomberg Ticker Share Price Performance Banking BMRI IJ Last Price(Rp) 7,725 Avg. Daily T/O(Rpbn/USDmn) 296.3/21.3 3m 6m 12m Absolute (%) -5.8 11.2 32.3 Relative to JCI (%) 0.7 6.9 22.6 52w High/Low price(rp) 9,050/5,738 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Outstanding Shrs (mn) 46,667 Mkt. Cap (Rpbn/USDmn) 360,500/25,956 Estimated Free Float (%) 40.0 Major Shareholders Government of Indonesia 60.0% EPS Consensus Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 BMRI Ciptadana Cons. % Diff 2018F 531.6 533.6-0.4 2019F 658.9 642.0 2.6 2020F 730.7 709.9 2.9 Erni Marsella Siahaan, CFA +62 21 2557 4800 ext. 919 siahaanerni@ciptadana.com http://www.ciptadana.com 35% 30% 25% 20% 15% 10% 5% 0% 1yr Rel. to JCI (RHS) In-line results; lower provision expense drive 43.7% YoY earnings growth Bank Mandiri (BMRI) starts the year with solid 1Q18 earnings growth of 43.7% YoY to Rp5.9 tn, forming 23.4-23.6% to both our and consensus 2018F estimates. The main driver of earnings growth was provision expense improvement which came at Rp3.8 tn (-29.0% YoY), which help credit cost to arrive lower at 2.2% of average earnings assets in 3M18 (vs. 3.3% in 3M17). We believe lower cost of credit trend to continue going forward to 2.0% of total loan in 2018F (vs. 2.3% in 2017). As of 1Q18, BMRI s NPL improved to 3.3% from 4.0% in 1Q17. PPoP grew by 6.7%, faster than net interest income growth of 3.2%, mainly from non-core items such as stronger subsidiaries income, marketable securities gains, and recoveries income. These items offset the pressure in administrative fee income which only grew by 1% YoY as the result of lower charge from SOEs banks ATM synergy and MDR cap regulation. Sustained NIM on cost of fund efficiency NIM slightly decreased by 20 bps despite falling asset yield of 70 bps, as lower cost of fund offset most of the asset yield pressure. BMRI managed to lower its cost of fund by 50 bps to 2.7% in 3M18 by both improving the CASA proportion to 64.6% of total deposit as of 1Q18 from 63.7% last year and trim the quota of special rate time deposits. We maintain our expectation of slight NIM decline going forward to be 5.7% in 2018/2019F, vs. 5.8% in 2017. Loan growth slowing down on cautiousness in middle segment Loan growth slowed down to 6.3% YoY as of 1Q18 and -3.9% Ytd, given cautiousness on the middle and SME segment. Middle and SME loan growth contracted by 7.2% and 11.3% YoY as of 1Q18, respectively. As the lending has been slow down in the past few quarters, BMRI has consistently reduced its middle segment exposure significantly to 23% of total loan as of 1Q18 from 28% as of 2016. BMRI plans to further reduce this middle segment exposure to 20% of total loan by 2020. Thus we slightly revised down our loan growth estimates for BMRI given the lackluster loan growth in middle and SME segment. We expect loan growth would linger at 10/13% in 2018/19F, respectively. Maintain Buy with Rp9,200/share target price Following broadly in-line 1Q18 results, we reiterate our Buy call on the stock with Rp9,200/share target price. We believe earnings recovery will materialize in 2018/2019F with 20-24% earnings growth, mainly supported by normalizing provision expense. BMRI currently trades at 2.0x 2018F PBV. Our target price implies 2.35x of 2018F PBV and suggests 19.1% of potential upside. Exhibit 1 : Financial Highlights Year to 31 Dec 2016A 2017A 2018F 2019F 2020F Net Interest Income (Rpbn) 51,825 52,327 55,907 60,929 67,313 Net Profit (Rpbn) 13,807 20,640 24,808 30,750 34,100 EPS (Rp) 295.9 442.3 531.6 658.9 730.7 EPS growth (%) -32.1 49.5 20.2 24.0 10.9 BVPS (Rp) 3,224.0 3,572.6 3,916.4 4,327.1 4,747.8 PER (x) 26.1 17.5 14.5 11.7 10.6 PBV (x) 2.4 2.2 2.0 1.8 1.6 ROA (%) 1.4 1.9 2.1 2.4 2.4 ROE (%) 10.3 13.0 14.2 16.0 16.1 Dividend Yield (%) 1.7 1.7 2.6 3.1 3.4 Source : BMRI, Ciptadana Estimates Please see analyst certification and other important disclosures at the back of this report 2
Exhibit 2: BMRI 3M18 result (in Rp bn) 3M18 3M17 YoY 1Q18 4Q17 QoQ 2018F 3M18/18F Interest income 19,174 19,443-1.4% 19,174 20,193-5.0% Interest expense (5,951) (6,627) -10.2% (5,951) (6,705) -11.2% Net interest income 13,223 12,816 3.2% 13,223 13,488-2.0% 55,907 23.7% Non-interest operating income 6,733 5,869 14.7% 6,733 7,187-6.3% 29,075 23.2% Non-interest operating expense (8,411) (7,864) 7.0% (8,411) (9,703) -13.3% (36,989) 22.7% PPOP 11,545 10,822 6.7% 11,545 10,972 5.2% 47,994 24.1% Provision expense (3,834) (5,401) -29.0% (3,834) (3,733) 2.7% (15,342) 25.0% Operating profit 7,711 5,420 42.3% 7,711 7,239 6.5% 32,652 23.6% Net income 5,860 4,079 43.7% 5,860 5,570 5.2% 24,808 23.6% Ratios (%) Asset yield 8.2 8.9-0.7 8.2 8.7-0.5 Cost of fund 2.7 3.2-0.5 2.7 3.1-0.4 NIM 5.6 5.9-0.2 5.6 5.8-0.2 CASA 64.6 63.7 0.9 64.6 66.2-1.6 LDR 88.9 88.0 0.9 88.9 87.3 1.6 Cost to income 42.1 42.1 0.1 42.1 46.9-4.8 NPL gross 3.3 4.0-0.7 3.3 3.5-0.2 Credit cost 2.2 3.3-1.1 2.2 2.2 0.0 Loan loss coverage 139.7 133.0 6.7 139.7 134.8 4.9 CAR 20.9 21.1-0.2 20.9 21.6-0.7 ROA 2.1 1.6 0.5 2.1 2.0 0.1 ROE 14.3 10.9 3.4 14.3 13.6 0.7 Deposit 769,288 731,114 5.2% 769,288 815,807-5.7% Demand 186,246 178,124 4.6% 186,246 203,390-8.4% Savings 310,936 287,519 8.1% 310,936 336,913-7.7% Time 272,106 265,471 2.5% 272,106 275,504-1.2% Loan 684,117 643,285 6.3% 684,117 712,038-3.9% NPL 22,713 25,878-12.2% 22,713 25,041-9.3% Loan loss reserves -31,722-34,419-7.8% -31,722-33,745-6.0% Shareholders equity 162,127 149,282 8.6% 162,127 166,719-2.8% Source : BMRI and Ciptadana Sekuritas Asia Please see analyst certification and other important disclosures at the back of this report 3
Exhibit 3 - Income Statement Year to 31 Dec (Rpbn) 2016A 2017A 2018F 2019F 2020F Interest income 76,710 79,502 83,251 90,623 100,378 Interest expenses -24,885-27,174-27,343-29,694-33,065 Net interest income 51,825 52,327 55,907 60,929 67,313 Other non-interest income 22,700 25,808 29,075 33,462 37,117 Total operating income 74,526 78,135 84,983 94,391 104,429 Operating expenses -31,268-35,014-36,989-40,112-43,534 PPoP 43,258 43,121 47,994 54,279 60,895 Prov. expenses and others -24,645-15,952-15,342-13,856-15,938 Operating profit 18,613 27,170 32,652 40,422 44,957 Non-operating income (exp.) -40-13 -13-13 -13 Pre-tax profit 18,573 27,157 32,639 40,409 44,944 Income tax -3,923-5,714-6,867-8,502-9,456 Minority interest -844-803 -964-1,157-1,388 Net profit 13,807 20,640 24,808 30,750 34,100 Exhibit 4 - Balance Sheet Year to 31 Dec (Rpbn) 2016A 2017A 2018F 2019F 2020F Cash 22,907 24,269 24,269 24,269 24,269 Current acct, with BI 52,485 50,188 55,414 61,186 67,560 Interbank placement 83,977 86,931 86,931 86,931 86,931 Mkt, securities 61,606 62,161 62,161 62,161 62,161 Govt. Bonds 98,933 103,411 103,411 103,411 103,411 Loans 616,707 678,293 747,557 848,433 963,312 Fixed assets 35,663 36,619 37,351 38,098 38,860 Other assets 54,066 65,691 72,260 79,486 87,435 Total Asset 1,038,707 1,124,701 1,209,921 1,328,655 1,463,555 Deposits from customer 762,501 815,807 900,756 994,572 1,098,180 Borrowings 0 0 0 0 0 Other liabilities 64,683 73,762 73,762 73,762 73,762 Total liabilities 885,336 954,695 1,023,871 1,123,437 1,238,706 Shareholder equity 150,455 166,719 182,762 201,930 221,561 Minority interest 2,916 3,287 3,287 3,287 3,287 Total liab + SHE 1,038,707 1,124,701 1,209,921 1,328,655 1,463,555 Exhibit 5 - Per Share Data (Rp) 2016A 2017A 2018F 2019F 2020F EPS 295.9 442.3 531.6 658.9 730.7 BVPS 3,224.0 3,572.6 3,916.4 4,327.1 4,747.8 DPS 130.7 133.1 199.0 239.2 263.6 Source : BMRI, Ciptadana Estimates Please see analyst certification and other important disclosures at the back of this report 4
Exhibit 6 - Key Ratios Year to 31 Dec 2016A 2017A 2018F 2019F 2020F Ratios ROA (%) 1.4 1.9 2.1 2.4 2.4 ROE (%) 10.3 13.0 14.2 16.0 16.1 Net interest margin (%) 6.3 5.7 5.7 5.7 5.7 Yield on earnings asset (%) 9.3 8.7 8.5 8.4 8.5 Average cost of fund (%) 3.2 3.2 3.0 3.0 3.0 Cost to income ratio (%) 42.0 44.8 43.5 42.5 41.7 Cost of credit (%) 3.0 1.8 1.6 1.3 1.3 Non-performing loan (%) 4.0 3.5 3.2 2.7 2.3 Coverage ratio (%) 124.6 134.8 143.1 154.4 167.4 Loan to deposit ratio (%) 85.2 87.3 86.9 88.9 91.3 CASA ratio (%) 64.2 66.2 66.4 66.5 66.6 Equity to Asset (%) 14.5 14.8 15.1 15.2 15.1 Capital adequacy ratio (%) 20.4 21.6 20.0 19.6 19.1 Tier-1 CAR 19.3 20.6 18.7 18.3 17.8 PER (x) 26.1 17.5 14.5 11.7 10.6 PBV (x) 2.4 2.2 2.0 1.8 1.6 Dividend yield (%) 1.7 1.7 2.6 3.1 3.4 Growth (%) Total assets growth 14.1 8.3 7.6 9.8 10.2 Loan growth 10.7 9.7 10.0 13.0 13.3 Deposit growth 12.7 7.0 10.4 10.4 10.4 NPL growth 70.3-4.4-1.3-5.1-0.3 SHE growth 28.5 10.8 9.6 10.5 9.7 Net interest income growth 14.2 1.0 6.8 9.0 10.5 Non-interest income growth 4.3 13.7 12.7 15.1 10.9 Provision expense growth 104.6-35.3-3.8-9.7 15.0 Net profit growth -32.1 49.5 20.2 24.0 10.9 Source : BMRI, Ciptadana Estimates Please see analyst certification and other important disclosures at the back of this report 5
BMRI Result Update - 25 April 2018 HEAD OF RESEARCH ANALYST ANALYST Arief Budiman Erni Marsella Siahaan, CFA Yasmin Soulisa Strategy, Automotive, Heavy Equipment, Banking Property, Plantations Construction, Shipping T +62 21 2557 4800 ext 919 T +62 21 2557 4800 ext 799 T +62 21 2557 4800 ext 819 E siahaanerni@ciptadana.com E soulisayasmin@ciptadana.com E budimanarief@ciptadana.com ECONOMIST ANALYST ANALYST Imanuel Reinaldo Niko Margaronis Fahressi Fahalmesta T +62 21 2557 4800 ext 820 Telecommunication, Tower, Healthcare Cement, Toll Road, Poultry E reinaldoimanuel@ciptadana.com T +62 21 2557 4800 ext 734 T +62 21 2557 4800 ext 735 E margaronisniko@ciptadana.com E fahalmestafahressi@ciptadana.com ANALYST ANALYST TECHNICAL ANALYST Stella Amelinda Fransisca Maharani Putri Trevor Gasman Consumer Media, Retail T +62 21 2557 4800 ext 934 T +62 21 2557 4800 ext 740 T +62 21 2557 4800 ext 760 E gasmantrevor@ciptadana.com E amelindastella@ciptadana.com E putrifransisca@ciptadana.com RESEARCH ASSISTANT Sumarni T +62 21 2557 4800 ext 920 E sumarni@ciptadana.com EQUITY SALES Co HEAD OF INSTITUTIONAL SALES Dadang Mulyana Plaza ASIA Office Park unit 2 Plaza ASIA Office Park unit 2 Jl. Jend. Sudirman Kav. 59 Jl. Jend. Sudirman Kav. 59 Jakarta - 12190 Jakarta - 12190 T +62 21 2557 4800 ext 838 T +62 21 2557 4800 ext 807 Co HEAD OF INSTITUTIONAL SALES The Fei Ming F +62 21 2557 4900 F +62 21 2557 4900 E mulyanadadang@ciptadana.com E thefeiming@ciptadana.com BRANCH OFFICES JAKARTA - MANGGA DUA JAKARTA - PURI KENCANA SURABAYA Komplek Harco Mangga Dua Perkantoran Puri Niaga III Intiland Tower Surabaya Rukan Blok C No.10 Jl. Puri Kencana Blok M8 No.2E Ground Floor Suite 5 & 6 Jl. Mangga Dua Raya Kembangan Jl. Panglima Sudirman 101-103 Jakarta - 10730 Jakarta - 11610 Surabaya - 60271 T +62 21 600 2850 T +62 21 5830 3450 T +62 31 534 3938 F +62 21 612 1049 F +62 21 5830 3449 F +62 31 534 3886 SEMARANG Gedung Menara Suara Merdeka 6th Floor Unit 02 Jl. Pandanaran No.30 Semarang - 50134 T +62 24 7692 8777 F +62 24 7692 8778 Please see analyst certification and other important disclosures at the back of this report 6
Analyst Certification Each contributor to this report hereby certifies that all the views expressed accurately reflect his or her personal views about the companies, securities and all pertinent variables. It is also certified that the views and recommendations contained in this report are not and will not be influenced by any part or all of his or her compensation. Disclaimer This report does not constitute an offer to buy or sell any security/instrument, invitation to offer or recommendation to enter into any transaction. Nor are we acting in any other capacity as a fiduciary to you. When making and investment decision, you should d etermine, without reliance upon us or our affiliates, the economic risks and merits (and independently determine that you are able to assume these risks) as well as the legal, tax and accounting characterizations and consequences of any such transaction. In this regard, by accepting this report, you acknowledge that (a) we are not in the business of providing (and you are not relying on us for) legal, tax or accounting advice, (b) there may be legal, tax or accounting risks associated with any transaction, (c) you should receive (and rely on) separate and qualified legal, tax and accounting advice and (d) you should apprise senior management in your organization as to such legal, tax and accounting advice (and any risks associated with any transaction and our disclaimer as to these matters. The information contained in this report is based on material we believe to be reliable; however, we do not represent that it is accurate, current, complete, or error free. Assumptions, estimates and opinions contained in this report constitute our judgment as of the date of the document and are subject to change without notice. Any projections are based on a number of assumptions as to market conditions and there can be no guarantee that any projected results will be achieved. Past performance is not a guarantee of future results. PT CIPTADANA SECURITIES AND ITS AFFILIATES SPECIFICALLY DISCLAIMS ALL LIABILITY FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL OR OTHER LOSSES OR DAMAGES INCLUDING LOSS OF PROFITS INCURRED BY YOU OR ANY THIRD PARTY THAT MAY ARISE FROM ANY RELIANCE ON THIS REPORT OR FOR THE RELIABILITY, ACCURACY, COMPLETENESS OR TIMELINESS THEREOF. Disclaimer: This document is not intended to be an offer, or a solicitation of an offer, to buy or sell relevant securities (i.e. securities mentioned herein or of the same issuer and options, warrants or rights to or interest in any such securities). The information and opinions contained in this document have been compiled from or arrived at in good faith from sources believed to be reliable. No representation or warranty, expressed or implied, is made by PT CIPTADANA SECURITIES or any other member of the Ciptadana Capital, including any other member of the Ciptadana Group of Companies from whom this document may be received, as to the accuracy or completeness of the information contained herein. All opinions and estimates in this report constitute our judgment as of this date and there can be no assurance that future results or events will be consistent with any such opinions, forecasts or estimates. The information in this document is subject to change without notice; its accuracy is not guaranteed; and it may be incomplete or condensed. Please see analyst certification and other important disclosures at the back of this report 7