9.5 in the 2Q18’s loan yield a way lower than the 1Q18’s loan yield of - BMRI Clogged by Flat Interest Income 20180820 NHKS Company Report (English)

• 8.2% vs. Last Price +11.9%

  40.0 Outstanding sh.(mn) 46,667 Market Cap (IDR bn) 317,333 Market Cap (USD mn) 21,768 Avg. Trd Vol - 3M (mn)

  1.4% 1.9% 2.0% 2.0%

  ROIC 19.1% 16.1% 15.6% 15.8% P/E 19.6x 18.1x 13.6x 12.2x P/BV 1.8x 2.2x 1.8x 1.7x DPS (IDR) 133 199 221 246

  Dividend yield 2.3% 2.5% 3.3% 3.7% Source: Company Data, Bloomberg, NHKS Research

  Hold Dec 2018 TP (IDR) 7,500

  Consensus Price (IDR) 8,171 TP to Consensus Price

  Shares data

  Last Price (IDR) 6,700 Price date as of Aug 16, 2018 52 wk range (Hi/Lo) 9,050 / 6,250 Free float (%)

  41.58 Avg. Trd Val - 3M (bn) 282.83 Foreign Ownership 22.0%

  ROA

  Finance Bank Bloomberg BMRI IJ Reuters BMRI.JK Raphon Prima

• 62 21 797 6202, ext:214

  raphon@nhsec.co.id

  Share Price Performance YTD

• - 32.2% 49.7% 11.1% 11.4%

  1M

  3M

  12M

  Abs. Ret. -16.3% 2.3% -2.2% 0.6%

  ROE

  10.1% 12.8% 13.2% 14.0%

  Target Price of IDR7,500 We use an assumption of forward P/B of 1.9x (0.5 SD higher than the last 4- year P/B) as the basis for valuation method. The target price implies a 2018E P/B of 2.0x (vs. the current P/B of 1.8x) Bank Mandiri Tbk | Summary (IDR bn)

  Please consider the rating criteria & important disclaimer NH Korindo Sekuritas Indonesia Company Report | Aug 20, 2018 Bank Mandiri Tbk (BMRI) Clogged by Flat Interest Income

  2Q18 Performance Review: Unattractive Interest Income BMRI posted the decline of 0.2% y-y to IDR19.6 trillion in the interest income as since the 3Q16 its interest income underperformed. The interest income was flat at the range of IDR19-20 trillion per quarter. The flat growth since the last two years occurred along with the sluggish growth in credit and the downtrend in loan yield.

  On the other side, the net profit edged up 17.6%, but the hike was more attributable to the temporary hike of 22.9% y-y from IDR5.8 trillion to IDR7.1 trillion in non-interest income.

  Credit Rebound BMRI posted the growth of 11.8% y-y from IDR682 trillion in the 2Q17 to

  IDR762.5 trillion in the 2Q18’s credit. The growth was in stark contrast to the growth of 7.1% in the 1Q18’s credit. Thanks to the corporate segment posting the buoyant growth of 23.1% to IDR300.1 trillion that BMRI enjoyed the rosier growth in credit.

  However, the buoyant credit growth was coupled with a steep decline into 9.5% in the 2Q18’s loan yield a way lower than the 1Q18’s loan yield of 10.1%. We lower the estimate of the 2018’s interest income from IDR86.8 trillion to IDR82.9 trillion after the downturn in loan yield.

  2016/12A 2017/12A 2018/12E 2019/12E

  4.0% 3.5% 3.0% 2.8%

  Interest Income 76,710 79,502 82,886 91,344

  growth 7.2% 3.6% 4.3% 10.2%

  Operating Revenue 72,490 75,981 78,861 82,888 Net profit 13,789 20,640 22,929 25,554 EPS (IDR) 295 442 491 548

  EPS growth

  BVPS (IDR) 3,286 3,643 3,811 4,013 Net Interest Margin 5.9% 5.3% 5.1% 5.0% Loan/Deposits

  85.7% 88.5% 90.9% 92.2%

  NPL

  Rel. Ret. -7.3% 4.3% -1.2% 2.4% BDO Unibank 10,366 53,371 6.4% 4.1% 9.5% 20.2x 1.9x 0.9% Metropolitan Bank 5,490 41,612 6.5% 3.8% 8.3% 12.5x 1.1x 1.3% Philippine Island Bank 7,604 38,084 3.2% 3.6% 10.5% 17.2x 1.7x 2.0%

  Philippine

  Singapore

  Bank of Ayudhya 8,903 64,128 7.5% 3.7% 10.7% 12.2x 1.3x 2.1%

  Bangkok Bank 11,898 94,446 6.7% 2.4% 8.9% 11.3x 1.0x 3.2% Siam Commercial 14,897 92,841

  Thailand

  CIMB 13,429 124,711 17.0% 2.4% 9.8% 11.6x 1.2x 4.3% Malayan Banking 26,121 188,433 9.5% 1.8% 10.7% 13.4x 1.5x 5.6% Hong Leong 5,021 50,939 4.3% 1.6% 10.0% 12.0x 1.2x 2.2%

  Malaysia

  DBS 47,066 387,334 11.1% 1.9% 10.3% 13.3x 1.4x 6.7% UOB 32,648 268,287 19.2% 1.8% 11.3% 11.8x 1.3x 4.3% OCBC 34,305 340,370 21.4% 1.7% 11.5% 10.8x 1.2x 3.5%

  BMRI 21,768 82,772 44.3% 5.3% 14.5% 13.5x 1.9x 2.9% BBRI 26,652 82,886 11.0% 7.9% 19.3% 12.7x 2.4x 3.4% BBCA 39,871 55,219 12.2% 6.5% 18.8% 24.0x 4.3x 1.1% BBNI 9,370 52,203 9.4% 5.7% 15.5% 9.4x 1.4x 3.5%

  Company Report

  Company Market Cap (USD mn) Total Asset (USD mn) Net Profit Growth (LTM) Net Interest Margin (LTM) ROE (LTM) P/E (LTM) P/BV (LTM) Dividend Yield

  Source: Bloomberg, NHKS research

  The Indonesia’s banks are still capable of maintaining NIM higher than 5% albeit the headwind of decline in reference rate. The higher NIM is capable of being translated into a higher ROE. A number of banks in Malaysia and Singapore such as OCBC, CIMB, and Malayan Banking can outpace the growth of 10%-20% in net profit posted by the Indonesia’s banks. However, those three banks have bigger assets than does the Indonesia’s bank have.

  It persistently endeavors to not only strengthen its relationship with the corporate clients but also bolster the contribution of the consumer and micro segment. The contribution of the consumer segment is targeted to hit 19% in 2020 with the focus on mortgage loan, automotive credit, and payroll-based credit, particularly for employees of companies which are the corporate clients of BMRI Indonesian’s Bank Competitiveness in ASEAN Banking industry in Indonesia is the investment priority in ASEAN as it offers higher credit rate than do its peers in ASEAN. It is the takeaway factor to the excellent characteristic the banking industry in Indonesia has.

  ASEAN Banks BMRI at A Glance BMRI is the second biggest bank in Indonesia after BBRI. It is the leading bank in Indonesia in term of the corporate segment. In 2Q18, it distributed the credit of IDR300 trillion to the corporate segment of equal to 39% from the total credit.

  Aug 20, 2018

• 13.0% 3.2% 11.7% 11.8x 1.3x 3.8%

  Company Report

  Aug 20, 2018

  Performance Highlights Interest Income (IDR bn) | 3Q15 - 2Q18 Net Profit (IDR bn) | 3Q15 - 2Q18

  Source: Company, NHKS research Source: Company, NHKS research

  Gross Loan (IDR bn) | 3Q15 - 2Q18 Deposit (IDR bn) | 3Q15 - 2Q18

  Source: Company, NHKS research Source: Company, NHKS research

  Loan Composition Loan Yield, Cost of Deposit, NIM | 3Q15 - 2Q18

  Source: Company, NHKS research Source: Company, NHKS research

  Company Report

  Aug 20, 2018

  Multiple Valuation Forward P/B band | Last 4 years Dynamic Forward P/B band | Last 4 years

  Source: NHKS research Source: NHKS research

  Rating and target price update Target Price Revision Date Rating Target Price Last Price Consensus vs Last Price vs Consensus

  02/22/2018 Buy 10,300 (Dec 2018) 8,800 8,407 +17.0% +22.5% 08/20/2018 Hold 7,500 (Dec 2018) 6,700 8,171 +11.9% 8.2%

• Source: NHKS research, Bloomberg

  Analyst Coverage Rating Closing and Target Price

  Source: Bloomberg Source: NHKS research

  NH Korindo Sekuritas Indonesia (NHKS) stock ratings

  1. Period: End of year target price

  2. Rating system based on a stock’s absolute return from the date of publication : Greater than +15%

   Buy : -15% to +15%  Hold : Less than -15%  Sell

  Company Report

  Aug 20, 2018

  Summary of Financials

DISCLAIMER

INCOME STATEMENT BALANCE SHEET

  

This report and any electronic access hereto are restricted and intended only for the clients and related entity of PT NH Korindo Sekuritas Indonesia. This

report is only for information and recipient use. It is not reproduced, copied, or made available for others. Under no circumstances is it considered as a selling

offer or solicitation of securities buying. Any recommendation contained herein may not suitable for all investors. Although the information here is obtained

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and agents disclaim any responsibility and liability for claims, proceedings, action, losses, expenses, damages, or costs filed against or suffered by any person

as a result of acting pursuant to the contents hereof. Neither is PT NH Korindo Sekuritas Indonesia, its affiliated companies, employees, nor agents liable for

errors, omissions, misstatements, negligence, inaccuracy arising herefrom. All rights reserved by PT NH Korindo Securities Indonesia ^{BMRI Summary Last Price (IDR) 6,700}

^{Target Price (IDR) 7,500 2016/12A 2017/12A 2018/12E 2019/12E}

^{Rating: Hold ROE 10.1% 12.8% 13.2% 14.0% ROA 1.4% 1.9% 2.0% 2.0% ROIC 19.1% 16.1% 15.6% 15.8% Opera ti ng ROA 7.4% 7.0% 6.7% 6.5%}

^{in IDR bn 2016/12A 2017/12A 2018/12E 2019/12E Pre-Provi s i on ROA 4.5% 4.0% 3.8% 3.7%}

^{Interest Income 76,710 79,502 82,886 91,344 Non-Interes t Income/Op. Rev 28.5% 31.1% 31.5% 28.7%}

^{Growth (% y/y) 7.2% 3.6% 4.3% 10.2% Cos t/Income 40.2% 43.4% 43.5% 42.1%}

^{Interes t Expens es (24,885) (27,174) (28,866) (32,254) Ca s h Di vi dend (IDR bn) 6,213 9,288 10,318 11,499}

^{Net Interest Income 51,825 52,327 54,019 59,090 Di vi dend Yi el d (%) 2.3% 2.5% 3.3% 3.7%}

^{Net Interest Margin 5.9% 5.3% 5.1% 5.0% Pa yout Ra ti o (%) 45.1% 45.0% 45.0% 45.0%}

^{Net Fee Income 10,774 11,856 11,896 13,012 Equi ty/As s ets 14.8% 15.1% 14.6% 13.9%}

^{Tra di ng Income 3,027 3,950 4,088 4,472 Loa n/Depos i ts 85.7% 88.5% 90.9% 92.2%}

^{Other Opera ti ng Income 6,863 7,849 8,857 6,314 Loa n/As s ets 63.7% 64.9% 67.5% 68.7%}

^{Operating Revenue 72,490 75,981 78,861 82,888 NPL 4.0% 3.5% 3.0% 2.8%}

^{Opera ti ng Expens es (29,114) (32,992) (34,288) (34,887) Loa n Los s Res erves /Loa ns 5.0% 4.7% 4.1% 3.9%}

^{Pre-provisioning OP (PPOP) 43,375 42,990 44,573 48,002 Depos i ts /Li a bi l i ti es 87.2% 86.4% 87.0% 86.6%}

^{Provi s i on for Impa i rment (24,762) (15,820) (14,679) (14,687) CASA/Depos i ts 64.2% 66.2% 66.0% 65.3%}

^{EBT 18,573 27,157 29,854 33,271 Ti me Depos i ts /Depos i ts 35.8% 33.8% 34.0% 34.7%}

^{Income Ta x (3,923) (5,714) (6,124) (6,825) Pa r Va l ue (IDR) 250 250 250 250}

^{Non-control l i ng Interes t (861) (803) (800) (892) Tota l Sha res (mn) 46,667 46,667 46,667 46,667}

^{Net Profit 13,789 20,640 22,929 25,554 Sha re Pri ce (IDR) 5,788 8,000 6,700 6,700}

^{Growth (% y/y) -32.2% 49.7% 11.1% 11.4% Ma rket Ca p (IDR tn) 270.1 373.3 312.7 312.7}

^{in IDR bn 2016/12A 2017/12A 2018/12E 2019/12E 2016/12A 2017/12A 2018/12E 2019/12E}

^{Ca s h 22,907 24,269 23,051 23,258 Pri ce /Ea rni ngs 19.6x 18.1x 13.6x 12.2x}

^{Pl a cement i n Ba nks 136,462 137,119 130,346 156,343 Pri ce /Book Va l ue 1.8x 2.2x 1.8x 1.7x}

^{Net Loa ns 629,068 695,432 785,827 889,660 Pri ce/Op. Revenue 3.7x 4.9x 4.0x 3.8x}

^{Inves tment 160,785 165,984 166,149 164,994 PE/EPS Growth -0.6x 0.4x 1.2x 1.1x}

^{Fi xed As s et 35,663 36,619 36,516 36,536 EV/Opera ti ng Revenue 4.1x 5.3x 4.4x 4.3x}

^{Other As s ets 53,821 65,279 72,874 75,859 EV/PPOP 6.8x 9.4x 7.8x 7.5x}

^{Total Assets 1,038,706 1,124,701 1,214,763 1,346,650 EV (IDR bn) 295,240 405,091 347,198 358,331}

^{Depos i ts 772,176 824,601 901,680 1,003,799 Op. Revenue CAGR (3-Yr) 13.0% 11.4% 6.6% 4.6%}

^{Debt 45,124 52,739 54,101 65,247 EPS CAGR (3-Yr) -8.8% 1.3% 4.1% 22.8%}

^{Other l i a bi l i ti es 68,036 77,355 81,151 90,342 Ba s i c EPS (IDR) 295 442 491 548}

^{Total Liabilities 885,336 954,695 1,036,932 1,159,387 Di l uted EPS (IDR) 295 442 491 548}

^{Ca pi ta l Stock 11,667 11,667 11,667 11,667 BVPS (IDR) 3,286 3,643 3,811 4,013}

^{Reta i ned Ea rni ngs 96,931 111,358 124,988 140,224 Op. Revenue PS (IDR) 1,553 1,628 1,690 1,776}

^{Shareholders' Equity 153,370 170,006 177,831 187,262 DPS (IDR) 133 199 221 246}

^{in IDR bn 2016/12A 2017/12A 2018/12E 2019/12E 2016/12A 2017/12A 2018/12E 2019/12E}

^{Net Income 13,807 20,640 24,001 25,554 DCF (IDR bn)}

^{Deprec & Provi s i on 26,535 18,110 10,808 3,679 NOPAT 34,214 33,945 35,429 38,155}

^{Chg. In Worki ng Ca pi ta l (5,785) (4,362) (15,320) 5,927 +Depr./Amor. 26,535 18,110 10,808 3,679}

^{CFO 34,557 34,388 19,489 35,161 -Chg. i n Loa n (75,870) (82,134) (61,607) (131,882)}

^{Net Cha nges i n Loa n (75,870) (82,134) (61,607) (131,882) -Incr. (Decr.) i n Worki ng Ca p. (5,785) (4,362) (15,320) 5,927}

^{CFI (82,033) (87,382) (55,824) (132,095) (Unl evered) FCFF (20,906) (34,441) (30,690) (84,121) Di vi dends Pa i d (6,100) (6,213) (13,048) (10,318) WACC}

^{Net Cha nges i n Depos i t 85,627 52,699 30,599 102,119 Cos t of Debt (Ta x Adj.) 9.0% 7.2% 7.7% 8.0%}

^{CFF 79,369 53,401 9,694 97,141 Cos t of Equi ty (COE) 10.5% 12.1% 11.9% 12.0%}

^{Net Changes in Cash 31,893 407 (26,641) 207 WACC (%) 10.3% 11.5% 11.3% 11.3%}

^{RIM Sprea d (FROE-COE) (%) 1.1% 1.4% 1.6% 2.3% Res i dua l Income (IDR bn) 1,283 2,115 2,638 4,151}

^{By Geography % Shareholders % Equi ty Cha rge 12,506 18,525 20,291 21,403}

^{Indones i a 78.1 Republ i c of Indones i a 60.0 EVA Uni ted Sta tes 12.8 Ha rri s As s oci a tes 2.6 Inves ted Ca pi ta l (IDR bn) 159,392 198,494 222,745 231,932 Luxembourg 2.0 Bl a ckRock Inc 2.1 ROIC-WACC (%) 11.2% 5.6% 4.6% 5.1% Uni ted Ki ngdom 2.0 Va ngua rd 1.4 EVA (IDR bn) 17,856 11,174 10,232 11,862}

  CASH FLOW STATEMENT DCF, RIM & EVA OWNERSHIP PROFITABILITY & STABILITY _{August 16, 2018 Dec 2018}

  ^{Analyst: Raphon Prima}