Period

2Q15/1H15

Actual vs. Expectations

Bank Internasional Indonesia (BII) posted 1H15 net profit growth of 14% YoY.

Dividends

No dividends were declared.

Key Results Highlights

1H15 vs. 1H14, YoY

The surge in bottom-line (+14%) was primarily due to: (i) lower effective tax rate (-5ppts), and (ii) higher nonoperating gains (>6x from a low base). That said, total income growth was commendable (+15%), but it was dragged by a large provision for bad loans (+36%).

Net interest margin (NIM) expanded 19bpts, thanks to better price discipline in lending and deposit taking activities.

Loan-to-deposit ratio (LDR) was flattish at 94% as loans and deposits grew at a lethargic pace of 1%.

Cost-to-income ratio (CIR) fell 2ppts to 65% given that total income (+15%) accelerated at a quicker pace vs. opex (+12%).

Asset quality deteriorated as gross impaired loans (GIL) and credit charge ratio increased by 80bpts and 40bpts, respectively.

Annualised ROE was steady at 5% while regulatory capital ratios improved 2-4ppts. 2Q15 vs. 1Q15, QoQ

In contrast to the above, net profit nosedived 50% due to: (i) weak net interest income (-5%), and (ii) higher loan loss provision (+23%).

NIM fell 28bpts as Bank Indonesia cut the benchmark interest rate by 25bpts to 7.5% back in February. On top of that loans growth was also tepid.

LDR nudged down to 94% (-2ppts) as deposits (+2%) grew faster than loans (flat).

CIR spiked 2ppts to 66% on the back of a steeper fall in total income (-4%) vis-à-vis opex (-1%).

Asset quality dipped given that GIL and credit charge ratio rose by 70bpts and 40bpts, respectively.

Outlook

No respite to NIM pressure as: (i) competition for deposits remains heated along with (ii) the shift towards higher quality credit will drag down yields.

Furthermore, 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 (1Q15: ~4%).

Rating

Maintain OUTPERFORM

Valuation

Our GGM-TP of RM9.74 is kept. This is based on 1.5x FY16 P/B, where we utilised: (i) COE of 8.5%, (ii) FY16 ROE of 11.3%, 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 - 3 Aug 2015