Period  4Q14/FY14

Actual vs. Expectations  Bank Internasional Indonesia (BII) registered a weak set of results; its FY14 earnings plunged 55% YoY.

Dividends  No dividends were declared.

Key Results Highlights

FY14 vs. FY13, YoY  The fall in PAT (-55%) owed to: (i) an increase in opex as a result of inflationary pressure (+6%), (ii) higher loan loss provision on deteriorating asset quality (+128%) coupled with (iii) forex loss amounting to IDR107bn vs. a gain of IDR321bn booked in FY13.

 Under a tight liquidity environment, net interest margin (NIM) fell 19bpts on the back of higher cost of funds.

 Loan-to-deposit ratio (LDR) spiked up to 96% (+7ppts) as loans grew 3% while deposits contracted by 5%. Notably, loans growth was below management’s target of +16-17% for FY14.

 Cost-to-income ratio (CIR) was relatively flat at 64%.

 Asset quality continued to slide as: (i) gross impaired loans ratio (GIL) increased to 2.2% (+8bpts), and (ii) credit charge ratio rose to 1.8% (+90bpts).

 Annualised ROE fell to 5% (-9ppts) while regulatory capital ratios improved 2-3ppts.

4Q14 vs. 3Q14, QoQ  Earnings surged to IDR359bn from IDR4bn primarily due to: (i) higher net interest income (+17%), and (ii) lower loan loss provision (-57%).

 NIM improved 64bpts, thanks to Otoritas Jasa Keuangan (OJK)’s ruling to cap interest rates on deposits back in early Oct-14.

 LDR stood at 96% (+3ppts) as loans grew 1% while deposits declined 2%.

 CIR fell 1ppts given strict cost management.

 Asset quality improved: (i) GIL fell 33bpts to 2.2%, and (ii) credit charge ratio dropped to 1.4% (-2ppts).

Outlook  Given the challenging macro outlook in Indonesia such as: (i) slower economic growth, (ii) rising inflation along with (iii) wide current account deficit, we believe tight monetary policy is likely to stay. Hence, 2015 outlook for Indonesian banks is dim.

Change to Forecasts  No change to our forecasts as BII’s contribution to overall Group’s PBT is immaterial (~2%). Maybank will announce its FY14 results on 26 Feb.

Rating Maintain OUTPERFORM Valuation  Our TP of RM10.13 based on 1.7x FY15 P/B is maintained. The P/B multiple is derived using the Gordon Growth Model (GGM), where we utilised: (i) COE of 8.5%, (ii) FY15 ROE of 12.4%, and (iii) terminal growth rate (TG) of 3%. This can be justified by its lower ROE generation moving forward vs. its historical ROE of ~14% for the past 2 years.

 We continue to like Maybank, purely for its decent dividend yields of 5%-6%.

Risks to Our Call  Steeper margin squeeze.

 Slower-than-expected loan growth.

 Worse-than-expected deterioration in asset quality.

 Adverse currency fluctuations. 

Source: Kenanga