Bank Mandiri (BMRI IJ): 4Q20 results: better outlook going forward

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Results in-line with our and consensus expectations

BMRI reported a 4Q20 net profit of IDR3.1tn (-57.3% YoY, -17.2% QoQ), which brought its FY20 net profit to IDR17.1tn (-37.7% YoY). The results were in-line with our expectations (94.9% of our full-year forecast) and the consensus (100.3%). NII was down by 4.9% YoY in FY20, as loans contracted by 1.6% YoY in FY20. NIM remained under pressure and reached 4.65% in FY20 vs. 5.56% in FY19, mainly from a lower loan yield due to the benchmark rate transmission and a conservative interest accrual policy for COVID-restructured loans in the retail segment. A total of IDR3.45tn in cumulative deferred interest income was not recognized in FY20. In terms of loan growth, all segments still booked positive growth YoY, except for the SME segment which was down 6.1% YoY, while the corporate segment booked 8.6% YoY growth in FY20. We note that provision expense in 4Q20 jumped to IDR7.2tn (+33.1% QoQ and +300.3% YoY), which brought its FY20 provision expense to IDR22.9tn (+89.7% YoY), slightly higher than our forecast of IDR22.1tn.

Total loans restructured was within expectation in FY20

As of FY20, BMRI had restructured IDR123.4tn of loans: around IDR50.7tn came from the corporate segment (41.0%), followed by the micro segment at IDR21.1tn (17.1% of total restructured loans) and the consumer segment at IDR20.1tn. Management indicated that a total of IDR134.8tn was already in the pipeline to be restructured as of Dec-20, and they do not expect significant increase in the amount of total loans restructured in 2021. This figure is actually lower than its previous guidance of IDR133tn, and around 64% of its Covid-19 restructured loans fall into Low-Risk Criteria, which means that at the end of the restructuring period, those debtors will be able to pay back their interest and principal.

Guidance for FY2021

During the analyst meeting, the company guided for a single-digit loan growth in 2021F (~5-6%), and it plans to optimize potential from wholesale value chain and targeted large corporations, as well as accelerate micro & SME growth through digital innovation. Another main focus for BMRI for 2021, would be on NIM improvement and stable asset quality. The company targets NIM to reach 4.6%-4.8% in 2021, as BMRI had cut TD rate further in 4Q20 by another 25bps, and plans to continue to lower CoF further in 2021. As the company had frontloaded provisions in 2020, it expects Cost of Credit to decrease to 1.9%-2.4% in 2021 vs. 2.4% in 2020, and as OJK has given 1-year extension for Covid-19 loan restructuring program (POJK-48), it expects asset quality to remain at the current level for 2021F.

Reaffirm BUY call with an unchanged TP of IDR8,500/share

We reaffirm our BUY call with an unchanged 12-month TP of IDR8,500 based on a 1.8x 2021F PBV. In our view, BMRI is quite cautious with its guidance for 2021, as there is still much uncertainty at the moment. BMRI indicated that it still has room to pay at least 60% dividend from its 2020 net profits, as it still has ample capital. Key downside risks to our call would be a higher-than-expected CoC, slower loan growth and more loan restructuring in 2021 that would lower the NIM further.