Bank Danamon in first quarter of 2013 results is within expectations

Bank Danamon 1Q13 results - within expectations (Rp6,200, Neutral, TP Rp6,100)

Bank Danamon reported Rp1,005bn net profit in 1Q13, +12% YoY, and reached 22-23% of consensus and our full year expectations, similar to the percentage achievement in 1Q12 and 1Q11.

Net interest income and non-interest income recorded 10-11% YoY growth but the bank saw higher provisioning expenses (+23% YoY) in the quarter which limited net earnings by 12% YoY.

Loan growth increased 11% YoY (+1% QoQ), mainly supported by retail and SME & commercial loans which grew 29% and 24% YoY, respectively, while mass market (among others Adira Finance/automotive, micro/DSP) increased 8% and wholesale/corporate lending was down 5% YoY.

Of the total loans, mass market still dominated at 56% compared to 58% in 1Q12 while SMEC accounted for 27% of total loans vs. 24% over the same period. With lower total deposits, LDR increased to 135% in March 2013 but given the group issued some bonds, Loan-to-finance (LTF) increasd to 89% in March 2013 from 88% in March 2012.

Improvement was seen in NIM on YoY basis, up to 9.65% in 1Q13 from 9.5% in 1Q12 due to steeper increase in cost of funds as the bank has been reducing its time deposits. From 60% of total deposits in 1Q12 T/D now account for 55%. NIM would have been higher if there is more growth in 2-wheeler financing. The Indonesia Market Summaries noted that the automotive financing is still adjusting for the regulation on minimum down payment, both on conventional bank as well as sharia. As a result, Adira Finance sales declined 17% YoY to 373k units for 2-W and -5% YoY to 24K units for 4-W.

Unconsolidated NPL increased to 2.8% in Mar 13 from 2.2% in Mar 12 (not restated, if restated it was 2.8% as well) while the ratio remained at 2.5% on the consolidated basis. The wholesale segment saw the highest increase in NPL to 3.3% from 2.2% while retail and SMEC recorded lower NPL to 1.3% and 1.5% from 2.0% and 2.5%, respectively.

The rising cost-income ratio was due to the expansion and salary adjustment.

At this juncture, we maintain our Neutral call on the bank with TP of Rp6,100. The stock is trading at 1.9x P/B 2013F. The acquisition by DBS Group is still pending the approval from Bank Indonesia, which we anticipate in the near term.