Period

1Q16/3M16

Actual

Bank Internasional Indonesia (BII) posted 3M16 net profit growth of 74% YoY on improved performance across the board.

Dividends

No dividends were declared.

Key Results Highlights

1Q16 vs. 1Q15, YoY

The spike in earnings for 1Q16 (1Q15: +34%) came on the back of: (i) Net Interest Income (NII) growth of +9% (1Q15:+16%) and (ii) Non-interest income (NOII) gains of +16% (1Q15: +37%). The increase in fee-based income was achieved from treasury-related fees, bancassurance fees, loan & retail administration, and other services provided by the Bank. Earnings were also bolstered by a decline in provisioning by 9.2% to IDR388b.

Net interest margin (NIM) expanded 11bps to 4.6% thanks to better price discipline in loan pricing and active fund management.

Loan-to-deposit ratio (LDR) fell by 6ppts to 90.2% as deposits outpaced loans growth at 13.4% and 6.3%, respectively.

Loan-to-deposit ratio (LDR) fell by 4ppts to 91% as deposits outpaced loans growth at 10% and 4%, respectively.

Cost-to-income ratio (CIR) fell by 5ppts to 58% given that total income (+11%) accelerated at a quicker pace vs. opex (+1%).

Asset quality deteriorated where gross impaired loans (GIL) rose by 94bps to 3.8% but credit cost ratio improved by 23bps to 1.5%.

Annualised ROE was up at 11% due to strong growth in net profits and shareholders fund (+20%).

Regulatory ratios Tier-1/Total Capital improved by 70bps/20bps to 12.6% and 16.1%, respectively (above the regulatory requirements of 8.5%/10.5%). 1Q16 vs. 4Q15, QoQ

Contrary to the above, earnings dipped 48% due to: (i) declining NII (-37%), (ii) decline in other operating gains (-100%), and higher tax rate of 25%.

NIM was flat at 4.6% on top of loans growth of only 0.6% vs. deposits decline of 0.6%.

LDR inched by 1ppt to 91% due to the strong loans.

CIR surged 9ppts to 58% on the back of declining total income (-13%) vis-à-vis a higher opex (+7%).

Asset quality improved by 53bps at 3.66% but credit charge ratio rose by 46bps.

Outlook

BII's performance is likely to improve further in FY16, being a beneficiary of the infrastructure spending announced, stronger rupiah against the dollar, lower inflation and interest rate cut by 75bps since early this year. However, asset quality issues should continue to linger (gross NPL ratio to stay at elevated levels), since commodity prices remained challenging.

Change to Forecasts

Forecasts left unchanged as BII’s contribution to overall Group’s PBT is immaterial (FY15: ~4%).

Rating

Maintain OUTPERFORM

Valuation

Our GGM-TP of RM9.33 is kept. This is based on 1.4x FY16 P/B, where we utilised: (i) COE of 8.5%, (ii) ROE of 10.7%, and (iii) terminal growth of 3%.

All in, we continue to like Maybank for its: (i) superior yield offerings of ~5.2%, 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 - 28 Apr 2016