Download PDFM&A value supersedes fundamentals
- Modest FY18 earnings (+6.5%) albeit still below expectations.
- Loans grew 7.8% despite falling microloans to 1.6% of portfolio.
- Credit cost improved as loan mix shifts towards lower-risk assets.
- We view MUFG 's high offer price of Rp9,590 as SELL opportunity.
Modest results. 's reported net earnings of Rp3.9tn in FY18 (+6.5% yoy) came below our/consensus estimates of Rp4.1tn/Rp4.2tn, respectively, due to its restructuring cost of Rp265bn booked in 4Q18 (vs. Rp274bn in 4Q17). Excluding this, the result came in-line with expectations, and its earnings growth was largely driven by declining provisions (-7%). Excluding earnings contribution of Rp495bn from subsidiaries held in available for sale portfolio (eg. Adira Insurance), 's earnings from continuing operation was Rp3,922bn in FY18 or only 4.4% growth, which reflects the bank's slow asset growth in recent years due to its unwinding of microlending business.
Flat core profit. 's total loans grew at respectable 7.8% in FY18 despite its unwinding of microloans to 1.6% of loan portfolio (FY17: 5.2%; FY16: 8.0%), which has been ongoing in the past four years. The bank's loan growth drivers were Adira Finance (+13%), Enterprise loans (+11%), SME loans (+10%) and its consumer loans (+18%), particularly home mortgages (+29%). In our estimate, NIMs were stable at 8.8% in FY18 (vs. -30bps yoy according to management) but we forecast 's NIM to narrow to 8.3% in FY19F (FY20F: 8.0%) due to rising cost of funds and its loan portfolio mix shift towards lower-yielding enterprise and SME loans as expands loans into automotive supply chain to capitalises on MUFG 's strong relationship with Japanese companies.
Asset quality. 's credit cost improved to 2.5% in FY18 (FY17: 2.8%), down from as high as 3.6% in FY15-16, reflecting its loan portfolio mix shift towards lower-risk loans as the bank unwind its high margin/high credit-cost micro lending business, which accounted for as high as 14% of its loan portfolio in 2014. The improvement in 's credit cost came from mass-market loans (from 4.6% to 4.4%) as well as its enterprise/SME/retail portfolio (from 1.4% to 1.2%).
Valuation. We cut our FY19-20F earnings forecasts by c.24% to reflect the sale of subsidiaries (Adira Insurance), implying earnings growth of 4% in FY19F for 's continuing operation (pre-merger with Bank Nusantara Parahyangan). However, we raise our TP to Rp7,350 (from Rp6,000) due to our roll-forward of valuation to be based on FY19F book value and 's acquisition/merger plan, which led to MUFG 's generous offer price of Rp9,590 for minority shareholders who want to sell their shares during 28 March to 10 April 2019. We view this as a good SELL opportunity as it is well above our valuation for the stock.
Sumber : IPS RESEARCH
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