Bank Internasional Indonesia (BII) posted a 6M16 net profit of IDR859b, up by 122% YoY. As expected, no dividends were announced. Earnings forecasts for the Maybank Group are unchanged as BII’s PBT contribution is immaterial (FY15: ~ 4%). Maintain TP at RM9.07 and MARKET PERFORM call reiterated.

BII’s 1H16 net profit net profit spiked 122% jump YoY attributed to higher total income with lower opex and loans loss provisions. However, net profit declined QoQ due to higher opex and allowance for impairments. Asset quality deteriorated slightly YoY with the ongoing economic slowdown but improved slightly QoQ. NIM improved both YoY and QoQ despite the cut in interest rates as decline in cost of funds outpaced decline in lending yields.

6M16 vs. 6M15, YoY

• Total Income growth of +21% (1H15:+15%) was bolstered by strong performances from Net Interest Income (NII) and Non-Interest Income (NOII) of 16% and 37%, respectively (1H15: +11% and +27% respectively).
• No compression seen in Net interest margin (NIM) on an annualised basis as it expanded 35bps to 4.7% thanks to better price discipline in loan pricing coupled with a decline in cost of funds (by 48bps) outpacing the fall in average lending yields (by 8bps).
• The strong NII was underpinned by improved loans growth of +8% (1H15: +1%) with deposits keeping pace at +7% (1H15: +0.6%). There was a marginal increase in Loan-to-deposit ratio (LDR) of 70bps to 95%. Current account & savings account (CASA) deposits fell by 40bps to 39%.
• Through its Strategic Costs Management Programme in 1H16, Cost-toincome ratio (CIR) fell by 6ppts to 58% as opex growth was slower at 6%(1H15: +15%) vs. total income acceleration of +21%.
• Asset quality deteriorated where gross impaired loans (GIL) rose by 22bps to 3.7% but credit cost ratio improved marginally by 4bps to 1.9%.
• Annualised ROE was up at 10% due to strong growth in net profits and shareholders’ funds (+21%).
• Regulatory ratios Tier-1/Total Capital improved by 70bps/20bps to 12.6%/15.9%, (above the regulatory requirements of 8.5%/10.5%).

2Q16 vs. 1Q16, QoQ

• Contrary to the above, earnings dipped by 6% due to: (i) higher opex of 13%, and (ii) higher allowances for impairments at +55%.
• For the quarter, annualized NIMs improved by 27bps to 4.9% as the fall in cost of funds outpaced the fall in lending yields (46bps vs 7bps).
• LDR ascended by 3ppts to 95% due to the strong loans (+3%) vs. decline in deposits of 0.6%.
• CIR was almost flattish at 58% on the back of higher total income (+14%) vis-à-vis a higher opex (+13%).
• Asset quality marginally improved by 3bps at 3.7% but annualised credit charge ratio spiked by 80bps to 2.3%.

Source: Kenanga Research - 2 Aug 2016