Period

1Q15

Actual vs. Expectations

Bank Internasional Indonesia (BII) posted 1Q15 earnings growth of 34% YoY.

Dividends

No dividends were declared.

Key Results Highlights

1Q15 vs. 1Q14, YoY

The spike in earnings (+34%) came on the back of higher: (i) interest income (+9%) and (ii) fee-based income (+21%).

Net interest margin (NIM) widened 27bpts, thanks to better price discipline in lending and deposit taking.

Loan-to-deposit ratio (LDR) jumped 4ppts to 95% as loans (+5%) grew faster vs. deposits (flat).

Cost-to-income ratio (CIR) fell 2ppts to 64%, resulting from strict cost control.

Asset quality deteriorated slightly as: (i) gross impaired loans ratio (GIL) increased to 2.8% (+74bpts) and (ii) credit charge ratio ticked up 23bpts to 1.7%.

Annualised ROE improved 1ppts to 8% and similarly, regulatory capital ratios were enhanced by 2-3ppts. 1Q15 vs. 4Q14, QoQ

Contrary to the above, earnings dipped 29% due to higher: (i) opex (+14%) and (ii) loan loss provision (+30%).

NIM fell 12bpts as Bank Indonesia cut the benchmark interest rate by 25bpts to 7.5% in February.

LDR stood at 95% (-1ppts) as loans and deposits grew 1% and 3%, respectively.

CIR rose 5ppts to 64% as opex grew 14%, while income expanded at a slower pace of 5%.

Asset quality dipped given that: (i) GIL increased 57bpts to 2.8% and (ii) credit charge ratio nudged up 39bpts to 1.7%.

Outlook

NIM compression likely to stay due to: (i) heightened competition for deposits and (ii) shift towards higher quality credit.

Asset quality issues should continue to linger – gross NPL ratio to stay at elevated levels, since commodity prices remain soft.

Change to Forecasts

Forecasts left unchanged as BII’s contribution to overall Group’s PBT is immaterial (~3%).

Rating

Maintain OUTPERFORM

Valuation

Our GGM-TP of RM10.26 is kept. This is based on 1.66x FY15 P/B, where we utilised: (i) COE of 8.5%, (ii) FY15 ROE of 12.2%, and (iii) terminal growth of 3%.

All in, we continue to like Maybank for its: (i) superior yield offerings of 6%, and (ii) extensive regional exposure in ASEAN 5.

Risks to Our Call

Steeper margin squeeze.

Slower-than-expected loans and deposits growth.

Worse-than-expected deterioration in asset quality.

Adverse currency fluctuations.

Source: Kenanga Research - 30 Apr 2015