Malayan Banking - Decent turnaround for Indonesian unit HOLD

- Malayan Banking Bhd’s (Maybank) 97.5%-owned PT Bank Internasional Indonesia (BII) has released its full-year results for FY12, with a decent turnaround in net earnings to Rp1,208bil, an 81% jump from FY11’s Rp669bil. The turnaround came from a strong net interest income line. We estimate BII’s contribution to Maybank’s net earnings at 6.6% in FY12 based on our forecast, from circa 3% in FY11. 

- BII recorded a loans growth of 20% in FY12. This was driven mainly by the robust growth in the SME segment (29% of total loan) of 41% YoY, attributed to its stronger focus on growth in this segment. 

- Net interest margin (NIM) rose 51bps YoY to 5.73% in FY12 from 5.22% in FY11, largely due to containment in cost of funds. This was due to an equally strong deposit growth of 22%. The higher deposit growth was also largely from the SME segment (24% of total deposit).

- Gross impaired loans have risen though, by 15.2% QoQ, but gross impaired loans ratio was stable at 2.19% in 4QFY12 vs. 2.10% in 3QFY12 and 2.29% a year earlier in 4QFY12.

- The pre-tax profit of BII’s 62%-owned WOW Finance,  a subsidiary which is involved primarily in two-wheeler financing, increased to Rp28bil in FY12 from Rp16bil, but more importantly, gross impaired loans ratio has improved, to 3.16% in FY12 from 3.43% in FY11.  Recall its two-wheeler portfolio was affected by NPLs two years ago. 

- BII’s growth strategies would now be largely focused on the higher-yielding affluent market as well as the micro SME business. For FY13, it intends to optimise branch capabilities, as well as boost CASA funding. The other area would be to address its cost structure given a relatively high cost-to-income ratio.  

- For Maybank group as a whole, we expect it to report net earnings in-line with expectations. In the latest quarterly results for 3QFY12, Maybank’s topline growth had slowed, indicating that the previous 2QFY12’s loans growth stemmed largely from a lumpy corporate loan. Maybank’s bottom line has however performed better due mainly to unexpectedly low loan loss provisions, attributed to recoveries. BII has turned around in FY12 but contribution is still relatively small. We expect Maybank’s share price to still be driven by good dividends. Maintain HOLD on Maybank. 

Source: AmeSecurities