Bank Panin FY12 results in line

Bank Panin - FY12 results in line (PNBN IJ; Rp830; Hold; TP Rp920)

Net profit came in at Rp2.1tr which is 96% of the consensus and 99% of our expectations. Despite the strong loan growth of 29% y-y net interest income growth was limited to 10% y-y in 2012 due to lower NIM.

Panin recorded stable average interest yield on its assets at 9% in the past quarters and has seen cost of funds declined to 5.15% in 4Q12 from 5.33% in 1Q12 thanks to rising CASA ratio total deposits. However its high liquid assets with low yield led to the lower NIM in 2012 than in 2011.

Asset quality worsened in 4Q with NPL increased to 2.5% in December 2012 from 1.6% in September but the level was an improvement from 3.5% recorded in December 2011. We estimate Panin wrote off Rp1.66tr in 2012, tripled the level of Rp0.52tr in 2011 while loan loss coverage ratio declined to 56% in 2012 from 78% in 2011.

Operating expenses surged in 4Q12 both on personnel as well as G&A expenses due to network expansion and staff recruitments during the year. This led to the 15% y-y increase (+4% q-q) in net profit to Rp2.1t.

We do not expect  much excitement on the bank in 2013 except that they will continue their concentration on the commercial SME and corporate lending (their criteria on corporate loans may fall under middle-sized loans in other banks). Share liquidity remains poor and this coupled with low ROE translates into low valuation of 1.0x P/BV for 2013.