Asia Pacific Equity Research September 2014
ASEAN Banks
LIQUIDITY POSES GROWTH CHALLENGES
ASEAN Financials Harsh Wardhan Modi AC
Thailand Financials Anne JirajariyavechAC
Asia Financials Josh Klaczek
(65) 6882 2450
[email protected] J.P. Morgan Securities Singapore Private Limited
(66) 2684 2684
[email protected] JPMorgan Securities (Thailand) Limited
(852) 2800 8534
[email protected] J.P. Morgan Securities (Asia Pacific) Limited
See the end pages of this presentation for analyst certification and important disclosures, including non-US analyst disclosures. JP M J.P. Morgan d does and d seeks k tto d do b business i with ith companies i covered d in i itits research h reports. t A As a result, lt iinvestors t should h ld b be aware that th t the th firm fi may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
Investment Summary High LDRs and pull-back of liquidity is leading to slower credit growth, save for Philippines Funding competition has begun in earnest in Singapore/Malaysia, Thailand in early stages Quality of non-interest income will be an important differentiating factor within countries
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Credit quality is holding up well, despite cyclical headwinds, a risk in the making M&A is an important investment driver Valuations are dispersed Easing liquidity supporting Indonesia for now High in Malaysia, with rising risks Playing for an overshoot in Thailand Singapore has differentiated stock specific drivers Philippines stretched Top picks: DBS, SECB, HLBK, BCA & SCB
2
ASEAN Bank Valuations Valuations CMP
Mkt Cap
LC
$Mn
P/E (x)
P/BV (x)
Div yield (%)
RoE (%)
FY14E
FY15E
FY16E
FY14E
FY15E
FY16E
FY14E
FY15E
FY16E
FY14E
FY15E
FY16E
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Philippines BANK OF THE PHILIPPINE ISLAN
95.00
8,558
22.3
16.6
14.9
2.70
2.46
2.25
2.1
2.4
2.9
13.7
15.5
15.8
BDO UNIBANK INC
90.50
7,430
16.3
13.5
12.1
1.95
1.75
1.57
2.3
1.5
1.8
12.3
13.6
13.6
METROPOLITAN BANK & TRUST
85.95
5,409
14.6
13.5
11.5
1.76
1.62
1.48
1.2
1.5
1.7
12.3
12.6
13.6
PHILIPPINE NATIONAL BANK
87.30
2,500
17.3
14.3
10.2
1.00
0.95
0.88
-
1.1
2.3
6.3
6.8
9.0
126.60
1,750
10.7
10.9
10.0
1.60
1.45
1.32
1.4
1.5
1.6
16.0
13.8
13.5
SECURITY BANK CORP EAST WEST BANKING CORP
29.10
753
13.3
11.2
10.4
1.50
1.32
1.17
-
-
-
12.0
12.5
12.0
CHINA BANKING CORPORATION
51.60
1,880
16.0
12.7
10.7
1.46
1.38
1.29
2.8
3.6
4.3
9.7
11.1
12.4
BANK RAKYAT INDONESIA PERSER
11,125
23,422
12.1
10.5
9.3
2.88
2.42
2.05
2.5
2.8
3.2
26.0
25.0
23.8
BANK NEGARA INDONESIA PERSER
5,475
8,773
10.7
10.3
9.0
1.89
1.67
1.48
2.8
2.9
3.3
18.7
17.2
17.5
BANK CENTRAL ASIA TBK PT
11,825
24,938
16.1
13.6
12.3
3.76
3.11
2.62
1.6
1.8
2.0
25.6
25.1
23.1
BANK MANDIRI PERSERO TBK PT
10,525
20,906
12.0
10.3
9.1
2.40
2.06
1.77
2.1
2.4
2.8
21.6
21.5
20.9
BANK DANAMON INDONESIA TBK
3,775
3,095
10.0
9.4
7.5
1.07
1.00
0.92
3.0
3.2
4.0
11.1
11.0
12.7 13.1
Indonesia
Malaysia AMMB HOLDINGS BHD
6.71
6,408
10.8
11.0
10.6
1.54
1.43
1.35
3.9
4.5
4.8
14.8
13.4
HONG LEONG BANK BERHAD
14.42
8,219
13.1
11.8
10.7
1.87
1.69
1.53
2.4
2.8
3.1
15.1
15.1
15.1
PUBLIC BANK BERHAD
19.28
23,568
16.3
14.9
13.1
2.71
2.46
2.20
2.7
2.9
2.9
18.2
17.2
17.6
MALAYAN BANKING BHD
10.08
29,350
13.3
12.3
11.1
1.83
1.72
1.60
6.4
6.9
7.9
15.3
15.3
15.9
DBS GROUP HOLDINGS LTD
17.98
35,431
10.6
9.8
8.0
1.14
1.08
1.00
3.3
3.6
3.9
10.8
11.2
12.9
UNITED OVERSEAS BANK LTD
23.24
29,788
13.1
12.6
12.0
1.43
1.35
1.27
3.1
3.3
3.5
11.7
11.1
10.9
Singapore
Thailand SIAM COMMERCIAL BANK PUB CO
188.50
20,042
11.5
10.5
9.5
2.26
1.99
1.76
2.9
3.4
4.0
21.1
20.3
19.7
KASIKORNBANK PCL
227.00
16,943
11.4
10.2
9.2
2.10
1.79
1.55
1.5
1.8
2.0
19.8
18.9
18.1
KRUNG THAI BANK PUB CO LTD
23.50
10,288
10.3
9.4
8.4
1.46
1.33
1.22
3.8
4.3
4.7
14.8
14.8
15.1
BANGKOK BANK PUBLIC CO LTD
207.00
12,378
10.1
9.0
8.3
1.24
1.14
1.05
3.9
4.1
4.3
12.8
12.9
13.1
BANK OF AYUDHYA PCL
50.00
9,514
18.2
14.7
NA
2.29
2.12
1.95
2.4
2.8
3.2
13.0
13.8
14.7
TISCO FINANCIAL GROUP PCL
44.00
1,097
7.4
6.5
6.1
1.36
1.21
1.07
5.5
5.5
5.5
19.3
18.8
18.7
3.02
4,132
16.8
15.1
14.4
1.95
1.78
1.62
1.3
1.7
1.7
12.0
12.5
12.0
KIATNAKIN BANK PCL
41.75
1,099
9.7
9.2
8.8
0.97
0.94
0.92
7.2
7.8
8.4
10.2
10.4
10.6
THANACHART CAPITAL PCL
35.25
1,323
8.2
8.3
7.7
0.88
0.82
0.77
4.3
4.6
4.9
11.2
10.4
10.3
TMB BANK PCL
Sources: Company reports, J.P. Morgan estimates, Bloomberg prices as on 28th Aug, 2014
3
ASEA AN Bank ks LIQUIDITY POSES GROWTH CHALLENGES
Strategy gy view
4
View on ASEAN banks within Asian banks Josh Klaczeck, Klaczeck Head of Asia Financial Services Equity Research Banking Sector Performance by Country YTD (in USD) 2.50
PB (x)
2.30
ID (+44%)
IN (+44%)
PE = 10x
2.10
HK (+7%)
1.10
TW (+9%)
0.90
-0.50%
-1.00%
-1.00% -1.50% YTD Compression in 10Y Yields across DM
-2.00%
Asia (+14%)
-1.20%
CH (+7%)
KR (+10%)
0.70
-0.20%
-0.80% 0.80%
SG (+8%)
1.30
0.00%
-0.60% TH (+44%)
1.50
0.00%
-0.40%
PH (+22%)
1.70 LIQUIDITY POSES GROWTH CHALLENGES
AU (+11%)
MY (+7%)
1.90
ASEA AN Bank ks
DM Central Bank Intervention + Weaker Growth = Bond Rally
-2.50%
ROE (%)
0 50 0.50 5.0
7.5
10.0
12.5
15.0
17.5
20.0
22.5
USA
25.0
Source: Bloomberg, as of Aug 22, 2014.
$2.0
Trade Balance in ASEAN + India, US$bn using 3MMA Basis
Periphery Europe (RHS)
Finally, Foreign Banks Grew More Aggressively Post June 2013 -$6.0 $6 0
25%
-$8.0
20% 15%
-$10.0
$1.5
10%
-$12.0
$1.0 $0.5
Foreign Lending Actually Accelerated Post-June 2013
5%
-$14.0 $14 0
0%
-$16.0
-5%
$0.0
-$18.0
-10%
-$0.5
-$20.0
-15%
ASEAN Trade Balance
Japan
Source: Bloomberg, CEIC. * Through the end of Mar.** Through the end of Feb.
Improving Trade Balances Also Helped Liquidity Stress $2 5 $2.5
Core Europe
India Trade Balance (RHS)
ASEAN Domestic Lending Growth Y/Y
Source: Source: CEIC. As of June 2014.
5
Source: CEIC.
ASEAN Foreign Lending Growth Y/Y
Deposit Disintermediation & Real Rates Loan vs. Deposit Growth YTD: Constraint on Growth/NIM 9% 8%
8%
9% 7%
6%
6%
6%
6%
5% 6%
LIQUIDITY POSES GROWTH CHALLENGES
4%
3%
3%
4%
4%
4%
4%
2% 1% PH
KR
YTD Loan Growth
TH
MY
TW
KR
MY
ID
CH
TW
TH
PH
IN
Real Deposit Rate
Disintermediation Also Occurring via Growth in FX Deposits
+11%
+22%
35%
+17%
30%
9%
+8%
Growth in FXDeposits YTD
29%
25% +5%
0% -2%
-5% BMRI BNI BRI CASA Growth YTD
BCA
BOCHK HSB Time Deposit Growth YTD
13% 8%
10%
0%
-2% -3%
17%
15%
+1%
2%
20%
20%
4%
-6%
AU
Real Deposit Rate, One Year Ago
Hong Kong
+35%
-4%
-0.5%
Source: CEIC. As of Jun 30, 2014.
6%
-4%
-0.2% -2.1%-1.0%
YTD Growth in LC Deposits
Indonesia
8%
-0.3%
-1.00%
SG
Growth in Time vs. CASA Deposits in Indonesia & Hong Kong
10%
0.6%
0.5%
-0.1%
Source: CEIC. As of June 2014.
12%
0.6%
0.4%
-0.50%
0% ID
0.9% 0.7%
0.6%
1% 0
IN
0.9%
0.00%
1% CH
1 4% 1.4%
1.0%
0.50%
3% 2%
HK
1 5% 1.5%
1.00%
4%
Fall in Real Deposit Rates, Then and Now
1.7%
1.50%
5%
ASEA AN Bank ks
2.00%
Weaker Deposit Growth 7%
7%
Disintermediation Driven by Falling Real Rates on Time Deposits
6%
6%
5%
5%
3% 2%
-3%
0%
BEA
CH
MY
KR
PH
TH
SG
TW
YTD Growth in FX Deposits (USD basis) Source: CEIC. As of June 2014.
6
Source: CEIC
IN
ID
HK
Supply Side Constraints & Asset Sensitivity Thailand & Philippines Have Seen Deposit Costs Plummet 4.00%
Thailand: Decline in CoF Has Been a Tailwind for Earnings
Blended Deposit Cost, Thailand & the Philippines
3.50% 3.00% 2.50% 2.00%
(24)
LIQUIDITY POSES GROWTH CHALLENGES
1.50%
ASEA AN Bank ks
(15)
(16)
(30)
1.00% 0.50%
(36)
(21)
(23)
(28)
(28)
Funding Cost Declines YTD (bps)
0.00% (45)
Philippines Blended Deposit Rate
SCB
Thailand Blended Deposit Rate
Source: CEIC
110% 100%
BBL
KTB
TMB
Loan/Assets Ratio: Now & Then 80%
74%
87%
85%
60%
75%
74%
69%
67%
70%
94%
80%
66%
59% 50%
50%
45%
48%
41%
70%
59%
60%
60%
59%
40%
56% 30%
50% SG
ID Today
Source: CEIC
KK
Loan/Assets Much Higher Today vs. Previous Hike Cycle
Loan/Deposit Ratio: Now & Then
112%
90%
BAY SECTOR TISCO
Source: CEIC
LDRs in Asia Much Higher Today vs. Previous Hike Cycle 120%
KBANK TCAP
TH
IN
SG
HK
ID Today
2004
7
Source: CEIC
TH
IN 2004
HK
44%
ASEA AN Bank ks LIQUIDITY POSES GROWTH CHALLENGES
Country y views
8
Singapore – Investment Summary Shifts in liquidity will likely put the NIM
and asset quality discussions back in focus, after YTD price action dominated by China China, corporate action and non-II
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Deposit growth has faltered (-0.5% YTD,
-10% 3M ann.) mainly due to overseas acquisitions by asset managers and organic and inorganic overseas growth by local corporates Sector NIM to expand at a slower pace of
19bp over the next two years vs. 55bp decline over last five yrs on high LDR Asset quality remains resilient currently
but NPLs will normalize as rates move up M&A - Expect SG banks to stay at forefront
of regional consolidation, with slower growth in domestic market
Singapore Bank Valuation Company Rating
Price (LC)
DBS
OW
18
UOB
UW
23 Sector
PB (x)
Div yield (%)
RoE (%)
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
10.6
9.8
1.14
1.08
3.3
3.6
10.8
11.2
12.6
12.2
1.43
1.34
3.2
3.5
11.6
11.3
11.6
11.0
1.28
1.21
3.3
3.5
11.2
11.3
Source: Bloomberg and J.P.Morgan estimates. Price as of 28th Aug 2014.
Singapore 3M – 5Y curve 3.0 2.5 20 2.0 1.5 1.0 0.5 00 0.0 3M
DBS stays our top pick on best deposit
franchise and a turnaround in credit and treasury risk management
PE (x)
20/06/2008 Source: Bloomberg
9
5Y 15/05/2013
20/08/2014
Who moved my deposits? Swing in Govt. deposits over 12 months (S$ MM)
Excess liquidity has dried up (S$ B)
3,500
250
3,107
3 000 3,000 2,289
2,500
150
2,000
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
50
1,500 768
1 000 1,000
(50)
795
559 188
500
Liquidity has dried up
23
-
(150)
TOTAL
DEMAND DEPOSITS June 2013
Sources: MAS
FIXED DEPOSITS
SAVINGS DEPOSITS
June 2014
Sources: MAS
Swing in non-bank FI deposits over 12 months (S$ MM)
Swing in other resident deposits over 12 months (S$ MM)
6,000
40,000 ,
3,000
1,349
2,463 70
(865)
(3,000)
(1,013)
36,795
30,000
(101)
20,000
(6,000)
20,318 12,875 4,976 6,091
10,000
(9,000)
11,501 9,384
-
(12,000) (15,000)
21
(12,719) TOTAL
(11,924) DEMAND DEPOSITS Jun-13
FIXED DEPOSITS
(2,600)
(10,000) TOTAL
SAVINGS DEPOSITS
Jun-14
DEMAND DEPOSITS Jun-13
Sources: MAS
Sources: MAS
10
FIXED DEPOSITS Jun-14
SAVINGS DEPOSITS
Where is money going? Organic and inorganic growth by local corporates
Overseas acquisitions by asset managers
Non- bank FI deposit growth 80%
Y/Y gr
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
60%
Current account deposit growth of local corporates 50%
3month ann. gr
Y/Y gr
40%
40%
30%
20%
20%
0%
10% 0%
-20%
0%
-40%
-10%
-60%
-20%
-80%
3month ann. gr
-30% 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun
Sources: MAS
Sources: MAS
Disintermediation by CPF
Increased cross border lending (primarily to East Asia) 290%
2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun
East Asia
Europe
The Americas
3.0%
Others
250%
2.0%
210%
1.0%
170% 130%
0.0%
90%
-1.0%
50%
Spread (LHS)
CPF q/q gr (RHS)
4.0% 3.0% 2.0% 1.0%
-2.0% 0.0% Jun 04 Jun-05 Jun-04 Jun 05 Jun-06 Jun 06 Jun-07 Jun 07 Jun-08 Jun 08 Jun-09 Jun 09 Jun-10 Jun 10 Jun-11 Jun 11 Jun-12 Jun 12 Jun-13 Jun 13 Jun Jun-14 14
2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar June Sources: MAS
Sources: MAS
11
General commerce loan book System (S$ bn) – 29% CAGR in last 4 years
ACU’s loans to East Asia are increasing 157
160
200
General Ge e a Co Commerce e ce Loans oa s
ASEA AN Bank ks
US$ Billion
LIQUIDITY POSES GROWTH CHALLENGES
140 120
20%
% oof Total o a Loans oa s
150
15%
100
10%
50
5%
100 80 60 40 20 -
-
2010 2010 2011 2011 2011 2012 2012 2012 2013 2013 2013 2014 2014 Jun Oct Feb Jun Oct Feb Jun Oct Feb Jun Oct Feb June Sources: MAS
0% 2010 2010 2011 2011 2011 2012 2012 2012 2013 2013 2013 2014 2014 Jun Oct Feb Jun Oct Feb Jun Oct Feb Jun Oct Feb Jun
Sources: MAS
UOB (S$ mn) – 16% CAGR in last 4 years
DBS (S$ mn) – 39% CAGR in last 4 years 60,000 ,
25.0%
30,000 ,
13.5%
50,000
20.0%
25,000
13.0%
40,000
15.0%
30,000
20,000
12.5%
15,000 10 0% 10.0%
20,000
5.0%
10,000 Dec-10 Dec-11 Dec-12 General Commerce Loans
Dec-13 Mar-14 % of Total Loans
11.5%
5,000
0.0% Dec-09
12 0% 12.0%
10,000
-
Jun-14
11.0% Dec-09
Sources: Company reports
Dec-10 Dec-11 Dec-12 General Commerce Loans
Sources: Company reports
12
Dec-13 Mar-14 % of Total Loans
Jun-14
Malaysia - Investment Summary Slow loan growth at 6.9% 1H14 ann. is
leading to more intense market share competition. titi
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Ability to maintain market share
depends on 1) cost of funds, 2) branch p g strategy. gy Smaller network,, and 3)) pricing banks at disadvantage and facing classic NIM vs. growth trade-off.
Malaysia Banks Valuation Company
Rating
AMM
UW
Price
PE (x)
PB (x)
Div yield (%)
(LC)
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
7
10.9
11.1
1.56
1.45
3.9
4.4
14.8
13.4
11.8
1.87
1.69
2.4
2.8
15.1
15.1
HLBK
OW
14
13.1
PBK
N
19
16.3
13.8
2.71
2.46
2.7
2.9
18.2
17.2
MAY
OW
10
13.3
12.3
1.83
1.71
6.4
6.9
15.3
15.3
Sector
13.4
12.2
1.99
1.83
3.8
4.3
15.9
15.3
Source: Bloomberg and J.P.Morgan estimates. Price as of 28th Aug, 2014.
Liquidity- Intense deposit competition as
companies i shifted hift d ffunds d tto hi higher h yielding i ldi assets, while inter-bank rates have moved up meaningfully due to LCR requirements.
RoE (%)
Deposits and AUM growth
OW on MAY … - Positive operating
leverage and strong deposit franchise to aid RoE. … & HLBK – Expectation E t ti off high hi h quality, lit
low risk profit growth leading to consistent book value accretion and re-rating.
Source: Bank Negara, Securities Commission Malaysia, CEIC
13
Key catalysts Rising private investments as % of GDP
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Profile of household borrowing and fin. Assets in 2013
18.0% 17.0% 16 0% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E Sources: Bank Negara, Negara CEIC CEIC, Ministry of Finance
Sources: Pemandu
LDR has risen from lows but still manageable
Banking system average asset yield to pick-up 4.3%
4.2%
4.2%
% 88.00 88
4.2%
4.2%
86.0
4.1%
4.0%
4.0%
82.0
3.9% 3.9%
3.9% 3.8%
84.0
4.0% 3 9% 3.9% 3.8%
3.8%
80.0
3.8%
78.0 76.0
3.7% FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13 FY14E FY15E
Sources: Company data, J.P. Morgan estimates
Sources: Bank Negara, CEIC
14
Jun-14: 85.8%
Indonesia - Investment Summary Indo banks have defied the ‘impossible
ttrinity ty o of banking’ ba g in tthe e last ast five e yea years s First sign of easing liquidity in August after
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
seasonally low gr in July (6.3% M2 growth in July) Three factors will shape the bank’s ability to
protect RoE – CASA, LDR and coverage
Indonesia Banks Valuation Company
Rating
Price
PE (x)
PB (x)
Div yield (%)
RoE (%)
(LC)
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
2.8
26.0
25.0
BBRI
OW
11,100
12.1
10.5
2.88
2.42
2.5
BBNI
UW
5,450
10.6
10.2
1.87
1.66
2.8
2.9
18.7
17.2
BBCA
OW
11,850
16.2
13.6
3.77
3.12
1.5
1.8
25.6
25.1
BMRI
N
10 525 10,525
12 0 12.0
10 3 10.3
2 41 2.41
2 06 2.06
21 2.1
24 2.4
21 6 21.6
21 5 21.5
BDMN
UW
3,805
10.1
9.5
1.08
1.01
3.0
3.2
11.1
11.0
12.2
10.8
2.40
2.05
2.4
20.6
20.0
Average
2.6
Pricing power to shift away from banks to
g depositors. p The system y has one of the large most concentrated deposit holdings with just 0.3% of depositors holding 61% of system deposits. Credit costs will start normalizing due to
higher interest rates, slower growth and weaker IDR Loan growth guidance has moved to mid-
teen levels due to high LDR and slow deposit growth BCA is our top pick (OW) as it is best-in-
class risk manager and we maintain OW on R k t as we believe Rakyat b li th thatt BRI’ BRI’s NIM NIMs are better placed over the medium term.
Source: Bloomberg and JJ.P.Morgan P Morgan estimates estimates. Price as of 28th Aug 2014. 2014
Substantial deceleration in M2 23.00% 21.00% 19.00% 17.00% 15.00% 13.00% 11.00% 9.00% 7.00% 5.00% Jul-05 Source: CEIC
15
17.94%
6.26% Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Key catalysts CASA to decline 60.0% 58.0%
14.0
Spread widened in past few months and hence CASA reduced
When spread between TD rate and savings rate are high, CASA has dropped significantly
12.0
56.0% 10.0
54.0% 52.0%
8.0
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
50.0% 6.0
48 0% 48.0% 46.0%
4.0
44.0% 2.0 42.0% 40.0% Mar-03
Dec-03
Sep-04
Jun-05
Mar-06
Dec-06
Sep-07
CASA ratio (LHS)
Jun-08
Mar-09
Dec-09
Spread
Sep-10
Savings rate
Jun-11
Mar-12
Dec-12
Sep-13
Jun-14
TD rate
Sources: CIEC
Inverse correlation of 86% between FX reserves and NPL 140 120 100 80 60 40 20 -
Sources: CEIC
FX Reserve in USD bn (LHS)
NPL System (RHS-Inverted)
BOP has printed surplus in last few months 0% 1% 2% 3% 4% 5% 6% 7% 8% 9%
15000
Capital and financial
Current account
BOP
10000 5000 0 -5000 -10000 Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Sources: Company reports and J.P. Morgan estimates. Credit cost are Gross loans weighted.
16
Mar-14
Philippines - Investment Summary Attractive banking system but stocks
appear fully priced. Best liquidity position iti iin th the region i iin tterms off CASA CASA, LAR, LDR and underpenetrated market g growth trending g above 20% y/y y y from Mar-Jun 14 But consumer loan growth has started to
slow down
Price Company Rating
PE (x)
PB (x)
RoE (%)
(LC)
2014E
2015E
2014E
2015E
2014E
2015E
BDO
OW
90
16.2
13.4
1.94
1.74
12.3
13.6
BPI
UW
97
22.8
17.0
2.76
2.52
13.7
15.5
CHIB
OW
52
16.1
12.8
1.47
1.39
9.7
11.1
EW
UW
29
15.6
12.3
1.54
1.37
10.4
11.8
MBT
N
86
14.6
13.5
1.76
1.62
12.3
12.6
PNB
N
89
17.7
14.6
1.02
0.97
6.3
6.8
SECB
OW
127
10.7
10.9
1.60
1.45
16.0
13.8
Source: Bloomberg and J.P.Morgan estimates. Price as of 28th Aug 2014.
BSP introduced REST, requiring banks
to put up more capital for real estate loans, effectively increasing risk weights Legislative changes to spur M&A in the
industry BSP raised reserve requirements by
200bp in March-May March May to 20% and SDA by 25bp in May
Real estate loan growth is easing 1,000
20.0%
800
18.0%
600
16.0%
400
14.0%
200
12.0%
0
10.0%
SECB is our preferred pick due to solid
execution on turnaround and razor-sharp focus on RoRWA
Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
NII continues to be robust, driven by loan
Philippine Banks Valuation
Real Estate Loans Source: Bloomberg
17
REL % of Total Loan Portfolio
Key Catalysts Real estate stress test
ASEA AN Bank ks
Limit to lending – banks can only lend to the extent of their capital or raise more capital to fund real estate lending. R E drag RoE d – We W think thi k thi this will ill d drag d down b banks’ k ’ ROE on reall estate loans, e.g., instead of a CET 1 requirement of 6%, they now need to keep 29.5% of capital.
27%
24%
21%
Asian financial crisis
18%
Sources: BSP
PPP Projects YTD Project j
Cost
Status
Automatic Fare Collection System*
Php1.72bn
Contract Awarded
Mactan-Cebu International Airport Passenger Terminal Building*
Php17.52bn
Contract Awarded
Cavite-Laguna Expressway*
Php35.42bn
Waiting for Contract Award
LRT Line 1 Cavite Extension and O&M*
Php64.90bn
Waiting for Contract Award
Integrated Transport System Project - Southwest Terminal
Php2.50bn
Bid submission ongoing
Bulacan Bulk Water Supply Project
Php24.40bn
Waiting for bid documents
Integrated Transport System Project - South Terminal
Php5.20bn
Waiting for bid documents
New Centennial Water Supply Source Project
Php18.72bn
Waiting for bid documents
*Total Projects Bid Out YTD
Php119.56bn
Sources: Public-Private Partnership Center.
18
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
15%
1990
LIQUIDITY POSES GROWTH CHALLENGES
BSP introduced the real estate stress test (REST) in Jun14 requiring 14, ii b banks k tto maintain i t i a CET 1 off 6% and d CAR off 10% after a 25% write-off on its property books.
FAI as a % of GDP – pickup will boost loan growth
Thailand - Investment Summary Thailand bank stocks are covered by Anne Jirajariyavech (+66 2684 2684 /
[email protected])
Company
Rating
(LC)
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
Loan growth and operating leverage should
SCB
OW
190
11.6
10.5
2.27
2.00
2.9
3.4
21.1
20.3
KBANK
OW
225
11.4
10.2
2.09
1.79
1.6
1.8
19.8
18.9
KTB
OW
24
10.4
9.4
1.46
1.34
3.8
4.2
14.8
14.8
BBL
N
206
10.0
9.0
1.23
1.13
3.9
4.1
12.8
12.9
BAY
N
51
16.9
14.7
2.31
2.14
2.4
2.8
13.0
13.8
TISCO
N
44
7.5
6.5
1.37
1.22
5.5
5.5
19.3
18.8
TMB
UW
3
16.8
15.1
1.95
1.78
1.3
1.7
12.0
12.5
drive multiple re-rating
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Mortgage and SME to lead the recovery
((resilient ili t d demand d and d seasonality). lit ) C Corporate t loans face competition from bond market. Auto HP is still struggling. Government spending needs good execution. At least, we have moved from a no functional government to a government However, deposit competition should pick up
Thailand Banks Valuation Price
PE (x)
PB (x)
Div yield (%)
RoE (%)
KKB
UW
42
9.7
9.2
0.97
0.94
7.2
7.8
10.2
10.4
TCAP
UW
35
8.2
8.3
0.88
0.83
4.3
4.5
11.2
10.4
12.0
10.8
1.87
1.68
2.9
3.3
16.3
16.1
Average
Source: Bloomberg and J.P.Morgan estimates. Price as of 28th Aug 2014.
and put a cap on NIM Drivers/catalysts: Di / t l t 1) lloan and d ffee iincome
growth, 2) contained credit cost pressure, 3) EPS upgrades, 4) better competition from SFIs Key K iissues/risks: / i k 1) potential t ti l rise i iin d depositit
competition, 2) negative political developments and delays in public spending & investments
EPS sensitivity y to every y 5ppt pp increase in loan growth g
10% 8%
8% 6% 4%
4%
4%
4%
SCB
BBL KBANK Sector KTB
5%
TMB
KK
6%
6%
TCAP
BAY
2% 0%
Overall, O ll we stay t with ith our preference f for f
KBANK/SCB in the sector, and KTB remains a valuation call
4%
3%
5%
Source: Company reports and J.P.Morgan estimates
19
TISCO
Key catalysts Commercial banking system loan composition
13% 27%
7% 7%
Wholesale
Housing loans
Auto loans
Other consumption loans
Sources: Bank of Thailand and J.P.Morgan estimates
Auto loan as a % of total loans
Housing loans
10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4 0% 4.0% 3.0% 2.0% 1.0%
14% 12% 10% 8% 6% 4% 2% 0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1Q13 2Q13 3Q13 4Q13 1Q14
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
73%
H i loans Housing l % GDP Sources: Bank of Thailand and J.P.Morgan estimates
Sources: Bank of Thailand and J.P.Morgan estimates
20
8.0%
ASEAN Banks Risk Framework Fundamentals Risk Factors
ASEAN banks fundamental risk framework
is intended to give a view of inherent strength of the banks without looking at the share price element Bucket E is riskiest. The higher the banks in the spectrum, higher is the probability of a capital call in a down cycle. Banks at the lower end of spectrum have
higher probability of generating capital whereas banks at higher end are more likely to be in a capital consumption phase. Fundamentals Risk Factors 1.40 ID
1.30 1.20
Beta
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Bucket A is the least risky one, while
TH
1.10 1.00 0.90 0.85
PH SG MY 0.90
0.95
1.00
Fundamental Risk Factor Source: Bloomberg and J.P. Morgan estimates
1.05
1.10
Bank
Risk Factor
Mcap (US$m n)
HLBK MK
0.67
7,951
BBCA IJ
0.78
29,646
PBK MK
0.80
24,832
UOB SP
0.80
23,558
SCB TB
0.86
20,162
BBRI IJ
0.86
23,793
KBANK TB
0.88
16,685
CHIB PM
0.90
31,647
MAY MK
0.94
29,122
BBL TB
0.94
12,114
DBS SP
0.95
5,493
MBT PM
0.96
35,335
AMM MK
1.03
6,605
BDO PM
1.05
1,741
TMB TB
1.06
7,440
SECB PM
1.07
4,151
BAY TB
1.08
9,685
BMRI IJ
1.11
21,061
BPI PM
1.13
8,643
BBNI IJ
1.14
8,635
KKP TB
1.17
1,071
BDMN IJ
1.17
3,105
KTB TB
1.19
10,180
TISCO TB
1.22
1,070
EW PM
1.32
2,526
PNB PM
1.33
758
TCAP TB
1 49 1.49
1 320 1,320
Source: Bloomberg and J.P. Morgan estimates
21
Risk Bucket
A
B
C
D
E
ASEAN Banks Risk framework Fundamental Risk Factors vs. Market Beta
1.700
Low Risk, High Volatility
High Risk, High Volatility
BMRI IJ
ASEA AN Bank ks
BBRI IJ 1.30
Market Beeta
LIQUIDITY POSES GROWTH CHALLENGES
1.50
1.10
BBNI IJ KTB TB
SCB TB MBT PM KBANK TB BBL TB
HLBK MK
BBCA IJ UOB SP
DBS SP
BDO PM SECB PM TCAP TB
KKP TB TISCO TB AMMTMB MK TB BPI PM BAY TB
MAY MK
0.90
BDMN IJ
0.70
EW PM
Low Risk, Low Volatility 0.50 0.60
PNB PM
0.70
High Risk, Low High Risk, Low Volatility
CHIB PM 0.80
0.90
1.00
1.10
1.20
Fundamental Risk Factor Sources: Company reports, J.P. Morgan estimates, Bloomberg
22
1.30
1.40
1.50
1.60
Derivation of Risk Metrics Fundamentals Risk Factors Results
Ticker /
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Weight
8%
11%
NPL/loan Coverage
3%
6%
11%
19%
L/A Dep/Lib. Ex-Ln grth
6%
17%
Tier 1 Mkt beta
Sec.retail
17% Fee/Rev. Risk Factor
BMRI IJ
2.10
186.07
59
86.97
11.36
13.11
1.55
6.0
20.10
BBRI IJ
2.07
223.68
66
91.75
8.13
15.83
1.44
29.0
8.54
1.11 0.86
BBNI IJ
3.14
122.06
59
88.45
7.02
13.80
1.42
12.0
12.16
1.14
BBCA IJ
0.50
389.13
56
95.33
13.14
14.97
1.07
14.0
19.28
0.78
BDMN IJ
2.55
110.16
72
74.07
7.73
17.27
0.72
3.0
12.14
1.17
AMM MK
2 66 2.66
111 43 111.43
68
76 52 76.52
1 70 1.70
11 48 11.48
1 03 1.03
16 0 16.0
14 58 14.58
1 03 1.03
HLBK MK
2.03
124.65
57
84.05
1.87
12.32
1.09
43.0
15.30
0.67
MAY MK
2.38
104.98
64
76.33
9.13
13.06
0.91
24.0
19.50
0.94
PBK MK
0.84
144.25
71
86.20
4.70
11.05
0.50
30.0
15.22
0.80
BPI PM
2.42
94.40
52
90.54
8.76
13.27
1.01
14.0
10.97
1.13
BDO PM
2.96
131.72
61
86.63
5.97
14.63
1.18
10.0
18.18
1.05
PNB PM
4.88
163.15
45
84.78
20.20
16.45
1.38
7.0
11.57
1.33
SECB PM
1.04
240.67
46
68.73
14.20
15.29
1.13
13.0
8.32
1.07
EW PM
5.94
80.27
61
89.51
16.97
15.84
0.68
8.0
14.82
1.32
CHIB PM
3.28
135.78
56
96.45
9.17
14.50
0.55
30.0
11.41
0.90
MBT PM
1.96
165.01
48
81.31
4.62
14.98
1.23
15.0
14.22
0.96
DBS SP
1 39 1.39
110 90 110.90
59
77 68 77.68
11 46 11.46
13 71 13.71
1 06 1.06
21 0 21.0
20 20 20.20
0 95 0.95
UOB SP
1.48
133.74
60
79.14
9.71
13.21
1.06
29.0
23.25
0.80
BAY TB
3.83
120.23
77
71.27
5.49
11.79
0.96
12.0
20.50
1.08
BBL TB
2.90
195.13
67
84.39
4.56
12.55
1.15
11.0
23.64
0.94
KBANK TB
2.64
125.46
67
76.68
4.87
12.61
1.21
15.0
30.48
0.88
KKP TB
3.74
104.63
74
64.98
15.67
14.33
1.08
13.0
20.56
1.17
KTB TB
4.44
82.97
70
76.96
6.11
10.97
1.38
13.0
17.05
1.19
TCAP TB
5.32
76.07
72
66.86
28.37
9.45
1.08
11.0
19.45
1.49
SCB TB
2.77
132.32
69
77.78
10.34
11.72
1.26
25.0
29.69
0.86
TISCO TB
1.38
173.36
84
52.28
20.31
9.31
1.05
1.0
29.40
1.22
TMB TB
6.68
95.55
61
73.75
1.50
11.49
1.04
18.0
20.88
1.06
Sources: Company data and J.P. Morgan estimates. Metrics are the average of the past four years (save Tier 1 ratio, market beta and secured retail as % of loans, which are as of Dec-13).
23
DuPont Analysis by Country Singapore Country Du Pont
ASEAN Du Pont Du Pont Item NIM
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
IEA/A IEA/Assets t
2011
2012
2013 2014E 2015E 2016E
Du Pont Item
3.65
3.69
3.69
3.76
4.16
NIM
88 61 89.40 88.61 89 40
3.78
89 55 89.55
90 87 90.87
91 48 91.48
90 65 90.65
3.40
3.74
NII/Assets
IEA/A IEA/Assets t
2011
2012
1.85
1.78
1.66
1.69
1.74
1.88
81 57 82.97 81.57 82 97
85 15 85.15
85 66 85.66
86 57 86.57
86 87 86.87
1.41
1.45
1.51
1.64
NII/Assets
3.32
3.23
3.26
3.31
Non II/Assets
1.58
1.67
1.60
1.45
1.45
1.57
Non II/Assets
0.88
0.95
0.91
0.87
0.88
0.90
Rev /Assets
4.90
4.91
4.87
4.76
4.85
5.30
Rev /Assets
2.39
2.43
2.32
2.32
2.39
2.53
Costs/Assets
2.46
2.47
2.40
2.34
2.32
2.49
Costs/Assets
1.03
1.03
1.00
0.98
0.98
0.99
49 21 49.20 49.21 49 20
43 26 42.56 43.26 42 56
Costs/income
1.48
48 20 48.20
48 21 48.21
46 69 46.69
46 04 46.04
43 01 43.01
42 07 42.07
40 96 40.96
38 98 38.98
Opt Profits/Assets
2.44
2.43
2.46
2.41
2.54
2.82
Opt Profits/Assets
1.36
1.40
1.32
1.34
1.41
1.54
Credit Cost
0.65
0.69
0.80
0.79
0.89
1.10
Credit Cost
0.30
0.23
0.24
0.26
0.36
0.51
1.59
ROA
0.94
ROA
Costs/income
1.51
2013 2014E 2015E 2016E
1.62
1.56
1.52
1.55
1.66
1.01
0.95
0.96
0.95
0.99
A/E
12.52 12.08
12.01
11.95
11.78
10.14
A/E
11.52 11.70
12.30
12.44
12.13
12.19
ROE
16.13 15.81
15.31
14.71
14.87
15.27
ROE
10.76 11.83
11.62
11.93
11.44
11.90
Sources: Company reports and J.P. Morgan estimates
Sources: Company reports and J.P. Morgan estimates
Malaysia Country Du Pont
Indonesia Country Du Pont
Du Pont Item
2011
2012
2013 2014E 2015E 2016E
Du Pont Item
2011
2012
2013 2014E 2015E 2016E
NIM
2 45 2.45
2 45 2.45
2 38 2.38
2 31 2.31
2 33 2.33
2 39 2.39
NIM
7 27 7.27
7 10 7.10
7 21 7.21
7 26 7.26
7 32 7.32
7 37 7.37
93.67 95.01
95.08
94.87
94.83
95.02
84.80 86.85
87.53
87.14
87.68
87.99
IEA/Assets
IEA/Assets
NII/Assets
2.33
2.34
2.28
2.21
2.22
2.28
NII/Assets
6.16
6.15
6.29
6.31
6.41
6.47
Non II/Assets
0.95
1.00
0.98
1.00
1.03
1.05
Non II/Assets
2.32
2.32
2.26
2.13
2.12
2.10
Rev /Assets
3.27
3.34
3.26
3.21
3.25
3.34
Rev /Assets
8.48
8.48
8.54
8.44
8.53
8.57
Costs/Assets
1.47
1.54
1.55
1.51
1.49
1.47
Costs/Assets
4.15
4.11
4.05
4.02
3.94
3.85
44.40 45.46
48.62 48.19
46.88
47.18
45.89
44.78
4.49
4.42
4.59
4.71
Costs/income
46.84
46.17
45.03
43.36
Opt Profits/Assets
1.81
1.80
1.71
1.70
1.76
1.87
Opt Profits/Assets
4.33
Credit Cost
0.28
0.20
0.22
0.21
0.29
0.36
Credit Cost
1.22
1.24
1.30
1.51
1.75
1.89
ROA
1.24
1.26
1.24
1.21
1.22
1.27
ROA
2.73
2.81
2.84
2.68
2.68
2.71
A/E
21.74 20.82
19.67
18.97
18.68
18.33
A/E
8.54
7.94
7.67
7.50
7.37
7.34
ROE
17 06 16.62 17.06 16 62
15 40 15.40
14 46 14.46
14 20 14.20
14 60 14.60
ROE
23 72 22.50 23.72 22 50
22 03 22.03
20 38 20.38
19 90 19.90
19 76 19.76
Sources: Company reports and J.P. Morgan estimates
Costs/income
4.36
Sources: Company reports and J.P. Morgan estimates
24
DuPont Analysis by Country (contd (contd.)) Philippines Country Du Pont Du Pont Item
2011
2012
2013 2014E 2015E 2016E
Du Pont Item
2011
2012
2013 2014E 2015E 2016E
NIM
4.02
3.87
4.09
4.00
4.19
4.24
NIM
3.31
3.10
3.15
3.16
3.16
3.16
86.48 86.44
95.21 95.68
LIQUIDITY POSES GROWTH CHALLENGES
IEA/Assets
ASEA AN Bank ks
Thailand Country Du Pont
84.11
89.37
89.41
89.58
96.08
96.67
97.43
98.15
NII/Assets
3.45
3.30
3.37
3.51
3.68
3.74
NII/Assets
3.15
2.96
3.02
3.05
3.08
3.10
Non II/Assets
2.20
2.53
2.20
1.58
1.55
1.60
Non II/Assets
1.50
1.58
1.65
1.62
1.65
1.68
Rev /Assets
5.65
5.83
5.57
5.09
5.23
5.33
Rev /Assets
4.65
4.54
4.67
4.67
4.73
4.78
Costs/Assets
3.20
3.38
3.26
3.03
2.97
2.92
Costs/Assets
2.39
2.29
2.18
2.18
2.19
2.19
56.73 57.68
58.27
59.57
56.75
54.68
51.97 50.72
46.60
46.65
46.20
45.71
Costs/income
IEA/Assets
Costs/income
Opt Profits/Assets
2.45
2.45
2.31
2.06
2.26
2.41
Opt Profits/Assets
2.26
2.26
2.49
2.49
2.54
2.59
Credit Cost
0.67
0.78
1.05
0.82
0.89
0.95
Credit Cost
0.87
0.96
1.17
1.05
1.06
1.06
ROA
1.72
1.74
1.41
1.24
1.34
1.39
ROA
1.28
1.30
1.39
1.50
1.52
1.55
A/E
9.57
8.66
8.83
9.05
9.15
9.26
A/E
12.13 12.41
12.27
12.06
11.91
11.77
15 36 14.60 15.36 14 60
12 41 12.41
11 18 11.18
12 29 12.29
12 85 12.85
ROE
14 17 14.71 14.17 14 71
16 13 16.13
16 30 16.30
16 35 16.35
16 56 16.56
ROE
Sources: Company reports and J.P. Morgan estimates
Sources: Company reports and J.P. Morgan estimates
25
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Key themes for Asean Banks 1)
Deposit competition
2)
Change in policy stance
3)
Slower loan growth
4))
Pricing g and yyield curve changes g
5)
Asset quality risks
6)
M&A
26
1) Deposit competition Singapore – DBU’s loan to deposit ratio
Indonesia – CASA ratio will decline 60.0% 58.0%
14.0
Spread widened in past few months and hence CASA reduced
When spread between TD rate and savings g , CASA has dropped pp significantly g y rate are high,
110% 10.0
54.0%
100%
52.0%
8.0
50.0%
LIQUIDITY POSES GROWTH CHALLENGES
111%
12.0
56.0%
ASEA AN Bank ks
120%
6.0
48 0% 48.0% 46.0%
4.0
90% 80%
44.0% 2.0 42.0% 40.0% Mar-03
Dec-03
Sep-04
Jun-05
Mar-06
Dec-06
CASA ratio (LHS)
Sep-07
Jun-08 Spread
Mar-09
Dec-09
Sep-10
Savings rate
Jun-11
Mar-12
Dec-12
Sep-13
Jun-14
84.0
2000 Jun
2002 Jun
2004 Jun
2006 Jun
2008 Jun
2010 Jun
62%
Jun-14: 85.8%
2012 Jun
2014 Jun
61% 59%
60% 57%
58% 56%
80.0
54%
78.0
52%
55% 53% 52%
50% 2008
Sources: Bank Negara, CEIC
1998 Jun
Philippines - CASA
82.0
76.0
1996 Jun
Sources: MAS. Table 1.3A
Malaysia – loan to deposit ratio
86.0
1994 Jun
TD rate
Sources: Bank of Indonesia, CEIC
% 88.0
70% 1992 Jun
2009
2010
Sources: Bangko Sentral ng Pilipinas, CEIC
27
2011
2012
2013
2) Change in policy stance SDA rate was hiked in May-14 after cuts in the past three years
Philippine – RR hiked by 200bp recently to 20% 22
5.5 21
4.5 20
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
3.5 19
2.5
18
17 Feb-04
Feb-05
Feb-06
Feb-07
Feb-08
Feb-09
Feb-10
Feb-11
Feb-12
Feb-13
Feb-14
Sources: Bloomberg
1.5 Jan-10
Jul-10
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Sources: Bloomberg
Malaysia – 10 Year yield
Malaysia: 25bp OPR hike in July and expect next hike in 1Q15
5.5% % 5.0% 4.5% Mean: 4.0% 4 0% 4.0% 3.5% 33.0% 0% Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Sources: CEIC
Jan-11
Sources: Bloomberg
28
3) Slower loan growth Indonesia
Singapore 1,200
System Loans (S$ bn)
12 mnth
3 mnth ann
50%
Y/Y gr
35%
3mnth ann. gr
30%
2,500
25%
2,000
20%
20%
1,500
15%
200
10%
1,000
10%
-
0%
500
5%
40%
800
30%
600 400
Jun-11
Sources: MAS.
Dec-11
Jun-12
Dec-12
Jun-13
Dec-13
Jun-14
Sources: CEIC
Malaysia
Philippines
UCB Loans (Php bn) Sources: Bank Negara, CEIC
Sources: CEIC
29
Y/Y
Mar-14
-10%
3 month annualized
May-14
Jan-14
0%
Nov-13
800
Jul-13
0
Sep-13
2%
Mar-13
900
May-13
0% Jan-13
1,000 Nov-12
4%
1 000 1,000
6%
Jul-12
10%
8%
Sep-12
2,000
1,100
May-12
20%
Jan-12
3,000
10%
Mar-12
30%
Nov-11
4,000
12%
Sep-11
40%
Jul-11
5,000
3mth ann. ann (RHS) 14%
May-11
1,200
Y/Y growth (RHS)
Jan-11
Loans outstanding (LHS)
Mar-11
M$B 1,300
0%
0
2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun
Thousands s
LIQUIDITY POSES GROWTH CHALLENGES
Total loans in Rp tn
3,000
1,000
ASEA AN Bank ks
3,500
4) Pricing & yield curve changes
ASEA AN Bank ks
Malaysia 10Y Government Bond and BNM 7Y Bond
3.0
5.5
2.5
5.0
2.0
4.5
1.5
4.0
1.0
3.5
0.5
3.0
0.0
Source: Bloomberg
BNM 7 AAA
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
20/08/2014
Jul-10
15/05/2013
Jan-10
20/06/2008
Jul-09
5Y
Jan-09
2.5
3M
Jul-08
LIQUIDITY POSES GROWTH CHALLENGES
Singapore 3M-5Y curve
10 Yr Bond Yield
Source: Bloomberg
Indo Weighted Avg Lending Rate vs. 10yr Bond Yield
Philippines 1M-20YR curve 6.00
18.00
5.00
16.00 4.00
14.00 12.00
3.00
10 00 10.00
2.00
8.00 1.00
6.00 4.00 May-04 May-05 May-06 May-07 May-08 May-09 May-10 May-11 May-12 May-13 May-14
1MO
3MO
6MO Apr-14
WA Lending yield IDR Source: CEIC
10 yr bond yield
Source: Bloomberg
30
1YR
2YR Apr-13
3YR Dec-13
5YR
7YR Jul-14
10YR
20YR
5) Asset quality risks Asean NPL 7.00
Malaysia: NPL ratio at low level
6.00
4.96
5.00
4.54 3.63
4.00
3.08 2.46
LIQUIDITY POSES GROWTH CHALLENGES
3.00
ASEA AN Bank ks
3.5% 3 3% 3.3% 3.1% 2.9% 2.7% 2.5% 2.3% 2 1% 2.1% 1.9% 1.7% 1.5%
6.60
2.23
2.27
2.42
2.58
2.00 1.00 2007
2008
2009
2010
2011
2012
2013
2014E
2015E
Jun-14: 1.8%
2016E
Source: J.P.Morgan estimates
Sources: Bank Negara, CEIC
Philippines: NPL gradually easing
Indonesia: NPL is picking-up %
3.4
5
3.2 3.0
4
2.8 3
2.6 2.4
2
2.17
2.2
1 May-08
2.0 Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sources: Bangko Sentral ng Pilipinas, CEIC
May-09
May-10
Sources: Bank of Indonesia, CEIC
31
May-11
May-12
May-13
May-14
5) Asset quality risks (cont’d) (cont d) Singapore: Low NPL environment
Thailand: NPL trending south 50.0 45 0 45.0 40.0 35.0 30.0 25.0 20.0 15 0 15.0 10.0 5.0 0.0
1.60 1.40 1.20
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
1.00 0 80 0.80 0.60 0.40 2009 II 2009 IV 2010 II 2010 IV 2011 II 2011 IV 2012 II 2012 IV 2013 II 2013 IV 2014 II Sources: MAS
Sources: CEIC
Malaysia: Credit costs
Philippines: Credit costs 110 105 100 95 90 85 80 75 70 65 60
105 96 89
67
2011
2012
Sources: Company data, J.P.Morgan estimates
32
82
78
2010 Sources: Company data, J.P.Morgan estimates
95
2013
2014E
2015E
2016E
5) Asset quality risks (cont’d) (cont d) Singapore: Credit costs
Indonesia: Credit costs
55
51
230
45
210
38
40
LIQUIDITY POSES GROWTH CHALLENGES
228
175
190
36
35
ASEA AN Bank ks
250
50
170
151
150
30
30 25
130
26
24
23
189
122
124
130
2011
2012
2013
110 90
20 2010
2011
2012
2013
2014E
2015E
70
2016E
2010
Sources: Company data, J.P.Morgan estimates
Sources: Company data, J.P.Morgan estimates
Thailand: Credit costs BAY-GE BAY GE & TMB TMB-ING ING
200 200 150
IAS39
100
79
86
Great flood
23
50 50 49
59
90 90
92 92
84
67
60
84
99 99
86 86
8 85
0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14E FY15E Credit cost Extraordinaries Sources: Company data, J.P.Morgan estimates
33
2014E
2015E
2016E
6) Industry consolidation RoA – Singapore and Malaysia 1.30
1.20
1.24
1.26
RoA – Philippines and Indonesia 1.24
1.20
1.27
3.30
1 20 1.20
1.20
2.80
1.10 1.10
LIQUIDITY POSES GROWTH CHALLENGES
ASEA AN Bank ks
0.96
0.95
0.94
2 81 2.81
1.72
1.74
2.84
0.95
0.99
1.80
0.90
1.61
1.41
1.30
0.80 2010
2011
2012
2.68
2.68
2 1 2.71
1 24 1.24
1.34
1.39
2014E
2015E
2016E
2.30
1.01
1.00
2.51
2 73 2.73
2013
2014E
Singapore
2015E
0.80
2016E
2010
Malaysia
2011
2012
2013
Philippines
Sources: Company data and J.P.Morgan estimates
Indonesia
Sources: Company data and J.P.Morgan estimates
Loan growth – Singapore and Malaysia
Loan growth – Philippines and Indonesia
30%
30%
25%
25%
20%
20%
15%
15% 10%
10%
5%
5%
0%
0% 2010
2011
2012 Malaysia
2013
2014E 2015E Singapore
2010
2016E
2011
2012 Philippines
Sources: Company data and J.P.Morgan estimates
Sources: Company data and J.P.Morgan estimates
34
2013
2014E Indonesia
2015E
2016E
Regulatory Framework Across ASEAN, various macro-prudential measures have been implemented to minimize
risks of a bubble as and when the liquidity leaves. Singapore has implemented various macro-prudential measures to curb property price
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
appreciation. Similar to SG,, Malaysia y has implemented p higher g LTV for the first two houses and applying pp y g
higher property tax. BNM also came up with responsible lending guidelines (bank needs to approve loans based on net income instead of gross income) Indonesia accordingly, has also implemented higher LTV for mortgages and auto
financing. fi i Al Alongside id other th rules l iin regards d tto M&A (single ( i l majority j it ownership hi rule l and d single presence policy), requirement to disburse 20% credit to micro SME sectors, and corporate governance rating requirement in order to promote a more efficient banking system. In Philippines, Regulations are coming to the fore with the change in foreign ownership
rule (allowing 100% ownership and holding property beyond five years) spurring M&A in the coming quarters. BSP's real estate stress test is expected to limit real estate lending or force banks to raise capital, though this rule is still evolving as banks are in discussions with the BSP
35
ASEA AN Bank ks LIQUIDITY POSES GROWTH CHALLENGES
Singapore g p Banks
36
Singapore – Investment Summary Shifts in liquidity will likely put the NIM
and asset quality discussions back in focus, after YTD price action dominated by China China, corporate action and non-II
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Deposit growth has faltered (-0.5% YTD, -
10% 3M ann.) mainly due to overseas acquisitions by asset managers and organic and inorganic overseas growth by local corporates Sector NIM to expand at a slower pace of
19bp over the next two years vs. 55bp decline over last five yrs on high LDR Asset quality remains resilient currently
but NPLs will normalize as rates move up M&A - Expect SG banks to stay at forefront
of regional consolidation, with slower growth in domestic market
Singapore Banks Valuation Company Rating
Price
PB (x)
Div yield (%)
RoE (%)
(LC)
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
DBS
OW
18
10.6
9.8
1.14
1.08
3.3
3.6
10.8
11.2
UOB
UW
23
12.7
12.3
1.43
1.35
3.2
3.4
11.6
11.3
Sector
11.7
11.0
1.29
1.21
3.3
3.5
11.2
11.3
Source: Bloomberg and J.P.Morgan estimates. Price as of 28th Aug 2014.
Singapore 3M – 5Y curve 3.0 2.5 20 2.0 1.5 1.0 0.5 00 0.0 3M
DBS stays our top pick on what we believe
to be the best deposit franchise and a turnaround in credit and treasury risk management
PE (x)
20/06/2008 Source: Bloomberg
37
5Y 15/05/2013
20/08/2014
Who moved my deposits? Swing in Govt. deposits over 12 months (S$ MM)
Excess liquidity has dried up (S$ B)
3,500
250
3,107
3 000 3,000 2,289
2,500
150
2,000
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
50
1,500 768
1 000 1,000
(50)
795
559 188
500
Liquidity has dried up
23
-
(150)
TOTAL
DEMAND DEPOSITS June 2013
Sources: MAS
FIXED DEPOSITS
SAVINGS DEPOSITS
June 2014
Sources: MAS
Swing in non-bank FI deposits over 12 months (S$ MM)
Swing in other resident deposits over 12 months (S$ MM)
6,000
40,000 ,
3,000
1,349
2,463 70
(865)
(3,000)
(1,013)
36,795
30,000
(101)
20,000
(6,000)
20,318 12,875 4,976 6,091
10,000
(9,000)
11,501 9,384
-
(12,000) (15,000)
21
(12,719) TOTAL
(11,924) DEMAND DEPOSITS Jun-13
FIXED DEPOSITS
(2,600)
(10,000) TOTAL
SAVINGS DEPOSITS
Jun-14
DEMAND DEPOSITS Jun-13
Sources: MAS
Sources: MAS
38
FIXED DEPOSITS Jun-14
SAVINGS DEPOSITS
Where is money going? Organic and inorganic growth by local corporates
Overseas acquisitions by asset managers
Non- bank FI deposit growth 80%
Y/Y gr
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
60%
Current account deposit growth of local corporates 50%
3month ann. gr
Y/Y gr
40%
40%
30%
20%
20%
0%
10% 0%
-20%
0%
-40%
-10%
-60%
-20%
-80%
3month ann. gr
-30% 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun
Sources: MAS
Sources: MAS
Disintermediation by CPF
Increased cross border lending (primarily to East Asia) 290%
2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun
East Asia
Europe
The Americas
3.0%
Others
250%
2.0%
210%
1.0%
170% 130%
0.0%
90%
-1.0%
50%
Spread (LHS)
CPF q/q gr (RHS)
4.0% 3.0% 2.0% 1.0%
-2.0% 0.0% Jun 04 Jun-05 Jun-04 Jun 05 Jun-06 Jun 06 Jun-07 Jun 07 Jun-08 Jun 08 Jun-09 Jun 09 Jun-10 Jun 10 Jun-11 Jun 11 Jun-12 Jun 12 Jun-13 Jun 13 Jun Jun-14 14
2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 Jun Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec Mar June Sources: MAS
Sources: MAS
39
General commerce loan book System (S$ bn) – 29% CAGR in last 4 years
ACU’s loans to East Asia are increasing 157
160
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
US$ Billion
140 120 100 80 60 40 20 2010 2010 2011 2011 2011 2012 2012 2012 2013 2013 2013 2014 2014 Jun Oct Feb Jun Oct Feb Jun Oct Feb Jun Oct Feb June
Sources: MAS
200 180 160 140 120 100 80 60 40 20 2010 Jun
2011 Jun
2012 Jun
18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 2014 Jun
2013 Jun
General commerce loans
% of total loans
Sources: MAS
UOB (S$ mn) – 16% CAGR in last 4 years
DBS (S$ mn) – 39% CAGR in last 4 years 60,000 ,
25.0%
30,000 ,
13.5%
50,000
20.0%
25,000
13.0%
40,000
15.0%
30,000
20,000
12.5%
15,000 10 0% 10.0%
20,000
5.0%
10,000 Dec-10 Dec-11 Dec-12 General Commerce Loans
Dec-13 Mar-14 % of Total Loans
11.5%
5,000
0.0% Dec-09
12 0% 12.0%
10,000
-
Jun-14
11.0% Dec-09
Sources: Company reports
Dec-10 Dec-11 Dec-12 General Commerce Loans
Sources: Company reports
40
Dec-13 Mar-14 % of Total Loans
Jun-14
Economic Indicators Real GDP growth
Foreign Exchange Reserves (USD in millions)
20%
300,000
15%
250,000
10% 5%
3%
200,000
4%
150,000
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
0%
100,000
-5% 5%
50,000
-10%
1991
Sources: Bloomberg
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
Sources: Bloomberg
Inflation trend over the period (CPI YoY)
USD-SGD trend 19 1.9
7.0%
1.8
6.0%
1.7
5.0%
1.6
4.0%
1.5 1.4 13 1.3
1.263 1.27
2.0%
3.0% 2.0% 1.0%
1.2
1.5%
0.0%
1.1
-1.0%
1
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014E
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014E
Sources: Blooomberg
Sources: Bloomberg
41
Capital Framework Countercyclical capital buffer
MAS has laid out the Basel III framework under
Countercyclical capital buffer
MAS Notice 637 which was revised on 14 Sept 2012
The current MAS Basel III requirement of 9% CET1 excludes the countercyclical buffer. MAS/Singapore government has been using macro-prudential measures to lean against the wind, which will likely stay the mainstay of the policy, in our view. We believe the probability of putting in a 2.5% additional capital requirement will pose challenges, which can be avigated by using the g measures. more targeted
Bank with insurance subsidiary will have biggest
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
impact of phase-in provisions Singapore has not yet confirmed on leverage
Source: MAS
ratio which the Basel committee has pegged at a minimum of 3%. Bottom line, Singapore has the most advanced
Basel III framework in place amongst ASEAN banks and all three banks are in full compliance. Singapore g p Basel III requirement q and Phase-in
From Jan 13
From Jan 14
From Jan 15
From Jan 16
From Jan 17
From Jan 18
From Jan 19
Minimum CET1 CAR
4 5% 4.5%
5 5% 5.5%
6 5% 6.5%
6 5% 6.5%
6 5% 6.5%
6 5% 6.5%
6 5% 6.5%
Minimum Tier 1 CAR Minimum Total CAR
6.0% 10.0%
7.0% 10.0%
8.0% 10.0%
8.0% 10.0%
8.0% 10.0%
8.0% 10.0%
8.0% 10.0%
0.625% 1.25% To be decided
1.875%
2.5%
MAS Basel III requirement
Captail conservation buffer Countercyclical buffer Source: MAS
42
Liquidity Framework SG$ LDR
DBUs’ SG$ LDR rose by ~1095bp y/y to
111% as on June-14
120%
111%
110%
The increase in LDR is a function of low
100% 90%
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
rates
80% 70%
SG banks are still able to expand p their
60%
LDR by tapping wholesale funding more aggressively, especially for US$ liquidity
50%
Source: MAS
DBS - SG$ and FX LDR
UOB - SG$ and FX LDR
140%
120%
120%
100%
100%
80%
80%
60%
60%
40%
40%
20%
20% 0%
0% 1Q12
2Q12
3Q12
4Q12 SGD LDR
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
1Q12
2Q12
3Q12
4Q12 SGD LDR
FX LDR
Source: Company reports
Source: Company reports
43
1Q13
2Q13
3Q13
4Q13
FX LDR
1Q14
2Q14
DBS Group Holdings Ltd (DBS) DBS (OW): Asian money center bank, with improving credit risk management Significant revamp of its credit risk management over the last four years will show up in
relatively resilient NPLs, NPLs in turn leading to re re-rating rating in due course Combination of initiatives (Trade finance, reset of HK, WM) and circumstances (QE, Rmb,
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Euro crisis) has led to a broadening of the bank’s funding base NIM has remained resilient amid declining spreads due to increased wholesale funding funding,
diversification of its earning assets to include China and neutralization of the negative duration DBS has the lowest S$LDR (77%) and the highest CASA (55.7%) Our O r DDM-derived DDM deri ed JJun-15 n 15 PT is S$20. S$20 We use se a fair P/BV multiple m ltiple of 1.14x 1 14 with ith a normalized normali ed
RoE of 10.5%. Key risks to our view include asset quality deterioration in China trade book or otherwise, higher-than-expected NIM pressure and lack of cost discipline. DBS: Total trade exposure (S$ B) Product Ex port bills under LC
Our Client
Risk
Risk m itigants Sy stemically - important
Ex porting Corporate
Importer’s Bank
Other ex port financing
Ex porting Corporate
Ex porting Corporate
Import financing
Importing Bank or Corporate Importing Bank or Corporate
(EBLC)
Collateral management agreement
banks
China
Others 33
2
1
10
2
13
Established customer relationships cash deposits relationships,
Pledged collateral
Major banks, established customer relationships Controls ov er goods
Total
-
36
Source: Company reports
44
-
25
DBS: Geographical breakdown Geographical revenue and PBT breakdown
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
DBS S$ mn Singapore Hong Kong Rest of China S SE Asia S, Ai Rest of the World TOTAL DBS S$ mn Singapore Hong Kong Rest of China S, SE Asia R t off the Rest th World W ld TOTAL
2007 Rev.
2008 %
3,942 1,618 206 269 128 6,163
64% 26% 3% 4% 2% 100%
Rev.
2,155 824 70 138 37 3,224
%
3,672 1,433 379 359 210 6,053
2007 PBT
2009
61% 24% 6% 6% 3% 100%
Rev.
67% 26% 2% 4% 1% 100%
PBT 1,803 455 118 210 126 2,712
%
3,991 1,366 409 501 336 6,603
2008 %
2010
60% 21% 6% 8% 5% 100%
Rev.
66% 17% 4% 8% 5% 100%
PBT 1,461 556 82 293 144 2,536
%
4,426 1,465 426 457 292 7,066
2009 %
2011 Rev.
63% 21% 6% 6% 4% 100%
58% 22% 3% 12% 6% 100%
PBT 2,173 672 69 243 175 3,332
%
4,719 1,453 612 557 290 7,631
2010 %
2012
62% 19% 8% 7% 4% 100%
Rev.
PBT
65% 20% 2% 7% 5% 100%
2,299 677 218 356 183 3,733
Source: Company data.
45
%
4,966 1,532 663 591 312 8,064
2011 %
2013
62% 19% 8% 7% 4% 100%
Rev.
62% 18% 6% 10% 5% 100%
PBT 2,579 843 137 377 221 4,157
%
5,415 1,863 743 600 306 8,927
2012 %
1Q14
61% 21% 8% 7% 3% 100%
Rev.
62% 20% 3% 9% 5% 100%
PBT 2,805 1,004 127 249 133 4,318
%
1,471 506 277 137 60 2,451
2013 %
2Q14
60% 21% 11% 6% 2% 100%
Rev. 1,461 426 226 135 65 2,313
1Q14 % 65% 23% 3% 6% 3% 100%
PBT 778 326 127 7 34 1,272
% 63% 18% 10% 6% 3% 100%
2Q14 % 61% 26% 10% 1% 3% 100%
PBT 781 240 69 56 36 1,182
% 66% 20% 6% 5% 3% 100%
DBS: Annual Income Statement Income Statement
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
S$ in mn
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
2016E
Interest Income
5,542
7,809
9,090
8,122
6,114
5,699
6,555
7,621
7,986
8,928
10,625
13,504
Interest Ex pense
(2,599) (4,218) (4,982) (3,821) (1,659) (1,381) (1,730) (2,336) (2,417) (2,679)
(3,377)
(4,664)
Net Interest Income
2,943
3,591
4,108
4,301
4,455
4,318
4,825
5,285
5,569
6,249
7,247
8,840
Non-Interest Income
1,395
1,753
2,055
1,752
2,148
2,748
2,759
2,779
3,358
3,480
3,970
4,528
Net Fee income
986
1,155
1,462
1,274
1,394
1,397
1,542
1,579
1,885
2,026
2,330
2,680
Trading income
207
330
94
23
433
895
680
689
1,095
1,095
1,226
1,374
Other operating income
202
268
499
455
321
456
537
511
378
359
413
475
Total Revenues
4,338
5,344
6,163
6,053
6,603
7,066
7,584
8,064
8,927
9,730
11,217
13,368
Costs
(2,026) (2,369) (2,618) (2,655) (2,604) (2,925) (3,303) (3,614) (3,918) (4,301)
(4,731)
(5,156)
PPOP
2,312
2,975
3,545
(203)
(135)
Loan loss prov isions Other prov isions Pre-Tax Tax Profit before MI MI & EO Core profit
3,398
3,999
4,141
4,281
4,450
5,009
5,429
6,486
8,212
(191)
(653) (1,267)
(846)
(672)
(409)
(756)
(677)
(944)
(1,257)
(426)
(235)
(285)
(65)
(50)
(8)
(14)
-
-
-
-
-
2,163
2,910
3,038
2,585
2,513
3,332
3,686
4,157
4,318
4,807
5,598
7,013
(353)
(575)
(589)
(446)
(285)
(454)
(443)
(588)
(615)
(750)
(873)
(1,094)
1,810
2,335
2,449
2,139
2,228
2,878
3,243
3,569
3,703
4,057
4,725
5,919
(161)
(160)
(171)
(210)
(187)
(228)
(255)
(210)
(202)
(146)
(170)
(213)
1,649
2,175
2,278
1,929
2,041
2,650
2,988
3,359
3,501
3,911
4,555
5,705
Source: Company data, J.P. Morgan estimates.
46
DBS: Annual DuPont Analysis ROE breakdown
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
2016E
NIM (% of avg. avg IEA)
1 85% 1.85%
2 15% 2.15%
2 16% 2.16%
2 07% 2.07%
2 02% 2.02%
1 84% 1.84%
1 77% 1.77%
1 70% 1.70%
1 62% 1.62%
1 65% 1.65%
1 74% 1.74%
1 97% 1.97%
IEA/Assets
89.5%
88.6%
88.3%
84.9%
85.6%
86.6%
87.4%
89.7%
91.3%
90.9%
92.9%
93.1%
Margins (% of avg. As 1.65%
1.90%
1.91%
1.76%
1.73%
1.59%
1.55%
1.52%
1.48%
1.50%
1.62%
1.83%
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Non-IR contribution
32.16% 32.80% 33.34% 28.94% 32.53% 38.89% 36.38% 34.46% 37.62% 35.77% 35.39% 33.87%
Non-IR/Av g. Assets
0.78%
0.93%
0.96%
0.72%
0.83%
1.01%
0.88%
0.80%
0.89%
0.83%
0.89%
0.94%
Rev enue/Assets
2.44%
2.83%
2.86%
2.47%
2.56%
2.61%
2.43%
2.32%
2.36%
2.33%
2.50%
2.77%
Cost/Income
46.7%
44.3%
42.5%
43.9%
39.4%
41.4%
43.6%
44.8%
43.9%
44.2%
42.2%
38.6%
C/Assets
1.14%
1.25%
1.22%
1.08%
1.01%
1.08%
1.06%
1.04%
1.04%
1.03%
1.05%
1.07%
Pre-Provision ROA
1.30%
1.58%
1.65%
1.39%
1.55%
1.53%
1.37%
1.28%
1.33%
1.30%
1.45%
1.70%
LLP/L LLP/Loans
-0.27% 0 2 % -0.16% 0 16% -0.20% 0 20% -0.55% 0 % -0.97% 0 9 % -0.59% 0 9% -0.38% 0 38% -0.20% 0 20% -0.32% 0 32% -0.26% 0 26%
-0.33% 0 33%
-0.41% 0 41%
Loan/Assets
42.31% 43.94% 45.20% 48.11% 50.58% 52.97% 56.26% 59.20% 61.72% 62.70% 63.15% 63.97%
Other Income/Assets
0.03%
0.04% -0.15% -0.07% -0.08%
0.01%
0.02%
0.03%
0.02%
0.01%
0.01%
0.01%
Operating ROA
1.19%
1.50%
1.56%
1.12%
1.06%
1.23%
1.18%
1.20%
1.14%
1.15%
1.25%
1.45%
Pre-Tax Pre Tax ROA
1 22% 1.22%
1 54% 1.54%
1 41% 1.41%
1 06% 1.06%
0 98% 0.98%
1 23% 1.23%
1 18% 1.18%
1 20% 1.20%
1 14% 1.14%
1 15% 1.15%
1 25% 1.25%
1 45% 1.45%
Tax Rate
-16.3% -19.8% -19.4% -17.3% -11.3% -13.6% -12.0% -14.1% -14.2% -15.6%
-15.6%
-15.6%
Minorities & Outside Int. -0.09% -0.08% -0.08% -0.09% -0.07% -0.08% -0.08% -0.06% -0.05% -0.04%
-0.04%
-0.04%
Core ROA
0.93%
1.15%
1.06%
0.79%
0.79%
0.98%
0.96%
0.97%
0.93%
0.94%
1.02%
1.18%
Core RoRWA
1.45%
1.62%
1.39%
1.05%
1.13%
1.47%
1.51%
1.56%
1.54%
1.59%
1.71%
1.97%
Equity /Assets
9.32%
9.38%
9.04%
8.13%
8.67%
9.49%
8.79%
8.66%
8.61%
8.72%
9.09%
9.15%
9.9%
12.3%
11.7%
9.7%
9.1%
10.3%
10.9%
11.2%
10.8%
10.8%
11.2%
12.9%
Core ROE
Source: Company data, J.P. Morgan estimates.
47
DBS: Quarterly Income Statement Income Statement
S$ in mn
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14E
4Q14E
1,870
1,912
1,939
1,900
1,920
1,975
2,006
2,085
2,129
2,218
2,264
2,317
(534)
(588)
(607)
(607)
(593)
(593)
(600)
(631)
(641)
(661)
(673)
(704)
1,336
1,324
1,332
1,293
1,327
1,382
1,406
1,454
1,488
1,557
1,591
1,613
Non-Interest Income
820
621
672
666
990
927
744
697
963
756
905
856
Net Fee income
406
379
422
372
507
477
462
439
510
503
528
485
Trading income
292
133
130
134
408
336
188
163
362
176
280
277
Other operating income
122
109
120
160
75
114
94
95
91
77
97
94
2 156 2,156
1 945 1,945
2 004 2,004
1 959 1,959
2 317 2,317
2 309 2,309
2 150 2,150
2 151 2,151
2 451 2,451
2 313 2,313
2 496 2,496
2 469 2,469
Costs
(898)
(872)
(901)
(943)
(952)
(987)
(949)
(1,030) (1,041) (1,054) (1,080)
(1,126)
PPOP
1,258
1,073
1,103
1,016
1,365
1,322
1,201
1,121
1,410
1,259
1,417
1,343
(128)
(104)
(55)
(122)
(223)
(245)
(151)
(137)
(151)
(128)
(184)
(214)
Interest Income Interest Ex pense
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Net Interest Income
Total Revenues
Loan loss prov isions Oth prov iisions Other i
(16)
-
-
-
(14)
-
-
-
-
Other income
39
36
28
21
27
22
17
13
13
12
15
15
1,153
1,005
1,076
923
1,169
1,099
1,067
983
1,272
1,143
1,248
1,145
Tax
(170)
(143)
(165)
(110)
(167)
(162)
(152)
(134)
(199)
(180)
(196)
(174)
Profit before MI
983
862
911
813
1,002
937
915
849
1,073
963
1,051
970
MI and EO
(50)
(52)
(55)
(53)
(52)
(50)
(53)
(47)
(40)
(33)
(36)
(37)
Core profit
933
810
856
760
950
887
862
802
1,033
930
1,015
933
Pre-Tax
-
-
8
Source: Company data
48
DBS: Quarterly DuPont Analysis ROE breakdown
NIM (% of avg. IEA)
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
IEA/Assets
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14E
4Q14E
1.76%
1.72%
1.68%
1.63%
1.64%
1.62%
1.60%
1.61%
1.66%
1.67%
1.66%
1.66%
88.13% 88.03% 89.02% 88.69% 90.48% 89.94% 88.59% 89.36% 88.76% 89.48% 90.26% 90.09%
Margins (% of av g. Ass
1.55%
1.51%
1.49%
1.45%
1.48%
1.46%
1.42%
1.44%
1.47%
1.49%
1.50%
1.49%
Non-IR contribution
38.0%
31.9%
33.5%
34.0%
42.7%
40.1%
34.6%
32.4%
39.3%
32.7%
36.3%
34.7%
Non IR/Av gg. Assets Non-IR/Av
0 95% 0.95%
0 71% 0.71%
0 75% 0.75%
0 75% 0.75%
1 09% 1.09%
0 98% 0.98%
0 76% 0.76%
0 69% 0.69%
0 94% 0.94%
0 72% 0.72%
0 86% 0.86%
0 80% 0.80%
Rev enue/Assets
2.50%
2.22%
2.25%
2.20%
2.55%
2.43%
2.18%
2.14%
2.39%
2.21%
2.37%
2.30%
Cost/Income C/Assets
41.65% 44.83% 44.96% 48.14% 41.09% 42.75% 44.14% 47.88% 42.47% 45.57% 43.25% 45.60% 1.04%
0.99%
1.01%
1.06%
1.05%
1.04%
0.96%
1.03%
1.01%
1.01%
1.02%
1.05%
1.5%
1.2%
1.2%
1.1%
1.5%
1.4%
1.2%
1.1%
1.4%
1.2%
1.3%
1.3%
LLP/Loans
-0.26%
-0.20%
-0.11%
-0.23%
-0.40%
-0.42%
-0.25%
-0.22%
-0.24%
-0.20%
-0.28%
-0.32%
Loan/Assets
57.55% 58.04% 57.75% 58.65% 60.70% 61.25% 61.38% 61.92% 61.99% 61.88% 62.52% 62.61%
Pre-Prov ision ROA
Other Income/Assets
0.03%
0.04%
0.03%
0.03%
0.03%
0.02%
0.02%
0.00%
0.01%
0.01%
0.01%
0.01%
Operating ROA
1.31%
1.11%
1.17%
1.00%
1.26%
1.13%
1.07%
0.98%
1.23%
1.08%
1.17%
1.05%
Pre-Tax ROA
1.34%
1.15%
1.21%
1.03%
1.29%
1.16%
1.08%
0.98%
1.24%
1.09%
1.18%
1.07%
Tax Rate
-14.74% -14.23% -15.33% -11.92% -14.29% -14.74% -14.25% -13.63% -15.64% -15.75% -15.75% -15.24%
Minorities & Outside Int. -0.06%
-0.06%
-0.06%
-0.06%
-0.06%
-0.05%
-0.05%
-0.05%
-0.04%
-0.03%
-0.03%
-0.03%
Core ROA
1.08%
0.92%
0.96%
0.85%
1.05%
0.93%
0.88%
0.80%
1.01%
0.89%
0.96%
0.87%
C Core RoRWA R RWA
1 72% 1.72%
1 46% 1.46%
1 55% 1.55%
1 41% 1.41%
1 67% 1.67%
1 47% 1.47%
1 44% 1.44%
1 35% 1.35%
1 70% 1.70%
1 50% 1.50%
1 62% 1.62%
1 47% 1.47%
Equity /Assets
8.21%
8.27%
8.44%
8.67%
8.83%
8.53%
8.21%
8.20%
8.31%
8.38%
8.51%
8.82%
9.74% 12.12% 10.61% 11.33%
9.87%
Core ROE
13.19% 11.18% 11.37%
9.83% 11.85% 10.94% 10.66%
Source: Company data, J.P. Morgan estimates.
49
United Overseas Bank (UOB) UOB (UW): Negative revisions in offing Higher LDR (89% and S$ LDR of 100%) and weaker deposit franchise (CASA of 55.7%) will
li it pricing limit i i power on either ith side id off b balance l sheet h t Higher exposure to private sector property (mortgages, developers) will face cash flow strains
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
and hence weigh on UOB’s asset quality Expect NPLs and provisions to edge up, coverage to move lower and margin to remain under
pressure Our Jun-15 PT is based on 2-stage DDM. We use a fair P/BV multiple of 1.20x, with
normalized RoE of 10.9%. 10 9% Key upside risks to our view include meaningful easing in deposit competition and better asset quality
Expect NIM to stabilize at current level
NPL ratio ti and d coverage trend t d
2.35%
1.7%
NPL (%)
Coverage (%)
170%
2.25%
1.6%
160%
2.15%
1.5%
150%
2 05% 2.05%
1 4% 1.4%
140%
1.95%
1.3%
130%
1.2%
120%
1.1%
110%
1.0%
100%
1.85% 1.75% 1 65% 1.65% 1Q10
3Q10
1Q11
3Q11
1Q12
3Q12
Source: Company data and J.P.Morgan estimates
1Q13
3Q13
1Q14
3Q14E Source: Company data and J.P. Morgan estimates.
50
UOB: Geographical Breakdown Geographical revenue and PBT breakdown
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
UOB S$ mn Singapore Malaysia Thailand Indonesia Greater China Rest of the World TOTAL
UOB S$ mn Singapore Malaysia Thailand Indonesia Greater China Rest of the World Amortizing intangible assets TOTAL
2008 Rev Rev.
2009 %
3,380 548 459 286 158 419 5,250
64% 10% 9% 5% 3% 8% 100%
Rev Rev. 3,522 571 415 361 201 335 5,405
2008 PBT 1,907 235 77 107 5 165 2,496
2010 % 65% 11% 8% 7% 4% 6% 100%
Rev Rev. 3,436 706 408 388 227 341 5,506
2009 % 76% 9% 3% 4% 0% 7% 0% 100%
PBT 1,594 271 78 153 81 165 (8) 2,334
2011 % 62% 13% 7% 7% 4% 6% 100%
Rev Rev. 3,339 797 431 430 323 379 5,699
2010 % 68% 12% 3% 7% 3% 7% 0% 100%
PBT 1,996 395 87 175 105 156 (11) 2,903
2012 % 59% 14% 8% 8% 6% 7% 100%
Rev Rev. 3,790 915 530 454 414 392 6,495
2011 % 69% 14% 3% 6% 4% 5% 0% 100%
PBT 1,840 450 50 151 147 180 (10) 2,808
Source: Company data.
51
2013 % 58% 14% 8% 7% 6% 6% 100%
Rev Rev. 3,775 969 632 436 502 406 6,720
2012 % 66% 16% 2% 5% 5% 6% 0% 100%
PBT 2,256 557 118 184 222 21 (7) 3,351
1Q14 % 56% 14% 9% 6% 7% 6% 100%
Rev Rev. 1,004 242 158 99 160 89 1,752
2013 % 67% 17% 4% 5% 7% 1% 0% 100%
PBT 2,181 555 146 178 272 252 3,584
2Q14 % 57% 14% 9% 6% 9% 5% 100%
Rev Rev. 1,130 254 163 102 144 91 1,884
1Q14 % 61% 15% 4% 5% 8% 7% 0% 100%
PBT 475 160 57 24 101 66 883
% 60% 13% 9% 5% 8% 5% 100%
2Q14 % 54% 18% 6% 3% 11% 7% 0% 100%
PBT 672 136 16 16 71 63 974
% 69% 14% 2% 2% 7% 6% 0% 100%
UOB: Annual Income Statement Income Statement
S$ in m illion I t Interest t IIncome
LIQUIDITY POSES GROWTH CHALLENGES
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
2016E
4 882 4,882
6 962 6,962
7 370 7,370
6 856 6,856
5 159 5,159
4 994 4,994
5 640 5,640
6 202 6,202
6 508 6,508
7 171 7,171
8 227 8,227
10 155 10,155
(2,534)
(4,252)
(4,390)
(3,280)
(1,485)
(1,462)
(1,963)
(2,285)
(2,388)
(2,619)
(3,210)
(4,477)
Net Interest Incom e
2,348
2,710
2,980
3,576
3,674
3,532
3,677
3,917
4,120
4,552
5,017
5,678
Non-Interest Incom e
1,373
1,438
1,892
1,674
1,732
2,036
2,020
2,578
2,601
2,688
2,923
3,177
Net Fee income
900
1,003
1,278
1,095
976
1,163
1,318
1,508
1,731
1,731
1,869
2,019
Trading income
228
256
258
228
453
516
392
673
544
599
659
724
Other operating income
245
179
356
351
303
357
310
397
326
359
394
434
3,721
4,148
4,872
5,250
5,406
5,568
5,697
6,495
6,721
7,241
7,940
8,856
Costs
(1,424)
(1,736)
(2,018)
(2,050)
(2,075)
(2,258)
(2,450)
(2,747)
(2,897)
(3,139)
(3,390)
(3,661)
PPOP
2,297
2,412
2,854
3,200
3,330
3,310
3,247
3,748
3,824
4,102
4,550
5,194
Interest Ex pense
ASEA AN Bank ks
2005
Total Revenues
Loan loss prov isions
(174)
(181)
(155)
(612)
(1,110)
(426)
(466)
(456)
(408)
(651)
(941)
(1,410)
Other prov isions
-
(13)
(156)
(206)
(21)
(59)
(68)
(28)
(22)
(80)
(80)
(80)
Other income
100
271
207
103
107
116
93
87
190
125
131
138
2 223 2,223
2 489 2,489
2 750 2,750
2 485 2,485
2 307 2,307
2 942 2,942
2 806 2,806
3 351 3,351
3 584 3,584
3 496 3,496
3 660 3,660
3 842 3,842
Pre Tax Pre-Tax Tax Profit before MI MI & EO Core Profit Non-Recurring Items Attributable profits
(472) 1,751 (22)
(553) 1,936 (55)
1,729
1,881
(19)
689
1,710
2,570
(573) 2,177 (67)
(521) 1,964 (27)
2,109
1,937
-
-
2,109
1,937
(485)
(480)
1,821
2,462
(19)
(21)
1,802
2,441
100
255
1,902
2,696
Source: Company data, J.P. Morgan estimates.
52
(467) 2,339 (14)
(531) 2,820 (17)
(559) 3,025 (17)
2,325
2,803
3,008
-
-
-
2,325
2,803
3,008
(615) 2,881 (17) 2,864 100 2,964
(644) 3,016 (17)
(676) 3,166 (18)
2,999
3,148
-
-
2,999
3,148
UOB: Annual DuPont Analysis ROE breakdown
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
S$ in million
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
2016E
Interest Income
4 882 4,882
6 962 6,962
7 370 7,370
6 856 6,856
5 159 5,159
4 994 4,994
5 640 5,640
6 202 6,202
6 508 6,508
7 171 7,171
8 227 8,227
10 155 10,155
Interest Ex pense
(2,534) (4,252) (4,390) (3,280) (1,485) (1,462) (1,963) (2,285) (2,388) (2,619)
(3,210)
(4,477)
Net Interest Income
2,348
2,710
2,980
3,576
3,674
3,532
3,677
3,917
4,120
4,552
5,017
5,678
Non-Interest Income
1,373
1,438
1,892
1,674
1,732
2,036
2,020
2,578
2,601
2,688
2,923
3,177
Net Fee income
900
1 003 1,003
1 278 1,278
1 095 1,095
976
1 163 1,163
1 318 1,318
1 508 1,508
1 731 1,731
1 731 1,731
1 869 1,869
2 019 2,019
Trading income
228
256
258
228
453
516
392
673
544
599
659
724
Other operating income
245
179
356
351
303
357
310
397
326
359
394
434
Total Revenues
3,721
4,148
4,872
5,250
5,406
5,568
5,697
6,495
6,721
7,241
7,940
8,856
Costs
(1 424) (1,736) (1,424) (1 736) (2,018) (2 018) (2,050) (2 050) (2,075) (2 075) (2,258) (2 258) (2,450) (2 450) (2,747) (2 747) (2,897) (2 897) (3,139) (3 139)
(3 390) (3,390)
(3 661) (3,661)
PPOP
2,297
2,412
2,854
(174)
(181)
Loan loss prov isions
3,200
3,330
3,310
3,247
3,748
3,824
4,102
4,550
5,194
(155)
(612) (1,110)
(426)
(466)
(456)
(408)
(651)
(941)
(1,410)
Other prov isions
-
(13)
(156)
(206)
(21)
(59)
(68)
(28)
(22)
(80)
(80)
(80)
Other income
100
271
207
103
107
116
93
87
190
125
131
138
2,223
2,489
2,750
2,485
2,307
2,942
2,806
3,351
3,584
3,496
3,660
3,842
(472)
(553)
(573)
(521)
(485)
(480)
(467)
(531)
(559)
(615)
(644)
(676)
1,751
1,936
2,177
1,964
1,821
2,462
2,339
2,820
3,025
2,881
3,016
3,166
((22))
((55))
((67))
((27))
((19))
((21))
((14))
((17))
((17))
((17))
((17))
((18))
1,729
1,881
2,109
1,937
1,802
2,441
2,325
2,803
3,008
2,864
2,999
3,148
Non-Recurring Items
(19)
689
-
-
100
255
-
-
-
-
-
Attributable profits
1,710
2,570
2,109
1,937
1,902
2,696
2,325
2,803
3,008
2,999
3,148
Pre-Tax Tax Profit before MI MI & EO Core Profit
Source: Company data, J.P. Morgan estimates.
53
100 2,964
UOB: Quarterly Income Statement
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Income Statement
S$ in million
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14E
4Q14E
Interest Income
1,556
1,542
1,551
1,553
1,552
1,606
1,640
1,710
1,744
1,761
1,817
1,850
Interest Ex pense
(558)
(561)
(581)
(585)
(588)
(591)
(594)
(615)
(635)
(637)
(664)
(683)
Net Interest Income
998
981
970
968
964
1,015
1,046
1,095
1,109
1,124
1,153
1,166
Non-Interest Income
631
629
693
626
708
627
617
649
642
660
666
721
Net Fee income
362
386
372
388
453
436
407
435
414
410
431
477
Trading income
204
151
173
146
158
99
142
145
149
150
150
150
65
92
148
92
97
92
68
69
79
100
85
95
, 1,629
1,610 ,
1,663 ,
1,594 ,
1,672 ,
1,642 ,
1,663 ,
1,744 ,
1,751 ,
1,784 ,
1,818 ,
1,887 ,
Costs
(676)
(666)
(687)
(718)
(696)
(726)
(715)
(760)
(755)
(787)
(789)
(808)
PPOP
953
944
976
876
976
916
948
984
996
997
1,029
1,080
Loan loss prov isions
(111)
(111)
(115)
(119)
(123)
(127)
(56)
(102)
(122)
(152)
(175)
(202)
4
5
(5)
(32)
(7)
52
(30)
(37)
(35)
2
(20)
(27)
18
31
21
17
24
101
54
11
43
26
26
30
Pre-Tax
864
869
877
742
870
942
916
856
882
873
860
881
Tax
(172)
(151)
(166)
(42)
(143)
(156)
(182)
(78)
(89)
(161)
(179)
(186)
Profit before MI
692
718
711
700
727
786
734
778
793
712
681
695
(4)
(5)
(4)
(4)
(5)
(4)
(4)
(4)
(5)
(5)
(4)
(3)
Core Profit
688
713
707
696
722
782
730
774
788
707
677
692
Attributable profit
688
713
707
696
722
782
730
774
788
807
677
692
Other operating income Total Revenues
Other prov isions Other income
MI & EO
Source: Company data, J.P. Morgan estimates.
54
UOB: Quarterly DuPont Analysis ROE breakdown
NIM (% of avg. avg IEA)
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
IEA/Assets
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14E
4Q14E
1 98% 1.98%
1 92% 1.92%
1 84% 1.84%
1 77% 1.77%
1 70% 1.70%
1 71% 1.71%
1 71% 1.71%
1 74% 1.74%
1 73% 1.73%
1 71% 1.71%
1 71% 1.71%
1 70% 1.70%
86.01% 87.29% 87.74% 87.90% 88.59% 87.95% 88.53% 89.32% 89.62% 89.11% 89.15% 89.07%
Margins (% of av g. Ass
1.70%
1.68%
1.61%
1.55%
1.50%
1.51%
1.52%
1.56%
1.55%
1.52%
1.53%
1.52%
Non-IR contribution
38.7%
39.1%
41.7%
39.3%
42.3%
38.2%
37.1%
37.2%
36.7%
37.0%
36.6%
38.2%
Non IR/Av gg. Assets Non-IR/Av
1 07% 1.07%
1 07% 1.07%
1 16% 1.16%
1 01% 1.01%
1 09% 1.09%
0 93% 0.93%
0 90% 0.90%
0 93% 0.93%
0 89% 0.89%
0 89% 0.89%
0 89% 0.89%
0 95% 0.95%
Rev enue/Assets
2.76%
2.74%
2.78%
2.57%
2.57%
2.43%
2.43%
2.50%
2.41%
2.41%
2.43%
2.48%
Cost/Income C/Assets
41.51% 41.37% 41.31% 45.06% 41.63% 44.21% 42.99% 43.58% 43.12% 44.11% 43.41% 42.80% 1.15%
1.13%
1.15%
1.16%
1.07%
1.07%
1.05%
1.09%
1.04%
1.06%
1.05%
1.06%
1 6% 1.6%
1 6% 1.6%
1 6% 1.6%
1 4% 1.4%
1 5% 1.5%
1 4% 1.4%
1 4% 1.4%
1 4% 1.4%
1 4% 1.4%
1 3% 1.3%
1 4% 1.4%
1 4% 1.4%
LLP/Loans
-0.30%
-0.30%
-0.30%
-0.31%
-0.30%
-0.30%
-0.13%
-0.23%
-0.26%
-0.32%
-0.36%
-0.41%
Loan/Assets
61.82% 63.27% 63.12% 62.11% 62.20% 62.92% 63.85% 64.31% 63.87% 64.38% 65.11% 65.23%
Pre Provision ROA Pre-Provision
Other Income/Assets
0.04%
0.06%
0.03%
-0.02%
0.03%
0.23%
0.04%
-0.04%
0.01%
0.04%
0.01%
0.00%
Operating ROA
1 43% 1.43%
1 42% 1.42%
1 44% 1.44%
1 22% 1.22%
1 31% 1.31%
1 17% 1.17%
1 30% 1.30%
1 27% 1.27%
1 21% 1.21%
1 14% 1.14%
1 14% 1.14%
1 15% 1.15%
Pre-Tax ROA
1.46%
1.48%
1.47%
1.20%
1.34%
1.39%
1.34%
1.23%
1.22%
1.18%
1.15%
1.16%
Tax Rate
-19.92% -17.38% -18.93%
-5.66% -16.44% -16.56% -19.87%
-9.11% -10.09% -18.44% -20.83% -21.12%
ROA
1.12%
1.17%
1.14%
1.08%
1.08%
1.13%
1.03%
1.05%
1.07%
1.08%
0.89%
0.90%
RoRWA
1 98% 1.98%
2 05% 2.05%
2 05% 2.05%
2 02% 2.02%
1 99% 1.99%
2 04% 2.04%
1 82% 1.82%
1 82% 1.82%
1 91% 1.91%
1 93% 1.93%
1 57% 1.57%
1 58% 1.58%
Equity /Assets
9.00%
9.20%
9.13%
9.07%
9.06%
8.83%
8.61%
8.56%
8.49%
8.60%
8.76%
8.61%
ROE
12.47% 12.71% 12.47% 11.90% 11.87% 12.82% 11.98% 12.32% 12.64% 12.51% 10.17% 10.44%
Source: Company data, J.P. Morgan estimates.
55
ASEA AN Bank ks LIQUIDITY POSES GROWTH CHALLENGES
Malaysia y Banks
56
Malaysia - Investment Summary Slow loan growth at 6.9% 1H14 ann. is
leading to more intense market share competition. titi
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Ability to maintain market share
depends on 1) cost of funds, 2) branch pricing g strategy. gy Smaller network and 3)) p banks at disadvantage and facing classic NIM vs. growth trade-off.
Malaysia Banks Valuation Company
Rating
Price
PE (x)
PB (x)
(LC)
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
AMM
UW
7
10.9
11.1
1.56
1.45
3.9
4.4
14.8
13.4
HLBK
OW
14
13.1
11.8
1.87
1.69
2.4
2.8
15.1
15.1
PBK
N
19
16.3
13.8
2.71
2.46
2.7
2.9
18.2
17.2
MAY
OW
10
13.3
12.3
1.83
1.71
6.4
6.9
15.3
15.3
Sector
13.4
12.2
1.99
1.83
3.8
4.3
15.9
15.3
Source: Bloomberg and J.P.Morgan estimates. Price as of 28th Aug, 2014.
Liquidity- Intense deposit competition as
companies i shifted hift d ffunds d tto hi higher h yielding i ldi assets, while inter-bank rates have moved up meaningfully due to LCR requirements.
Div yield (%)
Deposits and AUM growth
OW on MAY … - Positive operating
leverage and strong deposit franchise to aid RoE. … & HLBK – Expectation E t ti off high hi h quality, lit
low risk profit growth leading to consistent book value accretion and re-rating.
Source: Bank Negara, Securities Commission Malaysia, CEIC
57
RoE (%)
Key catalysts Rising private investments as % of GDP
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Profile of household borrowing and fin. Assets in 2013
18.0% 17.0% 16 0% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E Sources: Bank Negara, Negara CEIC CEIC, Ministry of Finance
Sources: Pemandu
LDR has risen from lows but still manageable
Banking system average asset yield to pick-up 4.3%
4.2%
4.2%
% 88.0
4.2%
4.2%
86.0
4.1%
4.0%
4.0%
82.0
3.9% 3.9%
3.9% 3.8%
84.0
4.0% 3 9% 3.9% 3.8%
3.8%
80 0 80.0
3.8%
78.0 76.0
3.7% FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13 FY14E FY15E
Sources: Company data, J.P. Morgan estimates
Sources: Bank Negara, CEIC
58
Jun-14: 85.8%
Economic Indicators: Bank Negara International Reserves
Real GDP growth
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Y/Y growth 8.0% 7 0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1 0% 1.0% 0.0% -1.0% -2.0%
5.5%
M$B
7.4% 5.6%
6 3% 6.3% 5.2%
4.8%
500 450 400 350 300 250 200 150 100 50
5.8%
5.6% 4.7%
4.8%
-1.5% 2005
2006
2007
2008
2009
2010
2011
2012
2013
423 336 252
109
114
128
265
290
317
331
427
442
423
329
168
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 As of Jul-14
2014F 2015F
Sources: Department of Statistics Statistics, JJ.P. P Morgan estimates estimates, CEIC
Sources: Bank Negara, Negara CEIC CEIC, Ministry of Finance
USDMYR trend
Malaysia inflation rate trend
M$/USD 3.7 3.6 3.5 3.4 3.3 3.2 3.1 3.0 2.9 2.8
% 55 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0
Sources: Bloomberg, J.P. Morgan estimates
Sources: Bank Negara, CEIC
59
Capital Framework Malaysia has introduced Basel III norms at bank level Group level Basel III norms are still in progress There is a possibility of unwind of double leverage ratios at the group levels once the group
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
level norms come in The FSA,, effectively, y, does awayy with shareholding g limits
M l Malaysia i Basel B l III Norms N
2013 leverage ratio Minimum common equity capital ratio (1)
2014
2015
2016
2017
4 0% 4.0%
2019
Standard in force
Observation period reporting 3 5% 3.5%
2018
4 5% 4.5%
Capital conservation buffer (2)
4 5% 4.5%
4 5% 4.5%
4 5% 4.5%
4 5% 4.5%
0.6%
1.3%
1.9%
2.5%
(1) + (2)
3.5%
4.0%
4.5%
5.1%
5.8%
6.4%
7.0%
Minimum tier 1 capital (3)
4.5%
5.5%
6.0%
6.0%
6.0%
6.0%
6.0%
(3) + (2)
4.5%
5.5%
6.0%
6.6%
7.3%
7.9%
8.5%
Minimum total capital (4)
8.0%
8.0%
8.0%
8.0%
8.0%
8.0%
8.0%
(4) + (2)
8.0%
8.0%
8.0%
8.6%
9.3%
9.9%
10.5%
Capital instruments that no longer qualify as noncore tier 1 or tier 2 capital
Phased out over a 10 year horizon beginning 2013
Source: BNM
60
Liquidity Framework Bond market presence has led to disintermediation
Malaysia Y/Y loan growth vs. bond issuance
of banking system leading to lower loan growth. Despite Current Account (CA) surplus, sector CASA
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
is low at 26% as excess savings have been channeled to FD and unit trusts Malaysia liquidity framework is at risk if the CA
deteriorates quickly, leading to reliance on capital account to fund the BOP
M$B 140
14%
120
12%
100
10%
80
8%
60
6%
40
4%
20
2%
0
0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Private debt issuance (LHS)
Which may lead to increase in funding costs for
Source: Bank Negara, Negara CEIC
banks
Low CASA environment
Malaysia CA balance as % of GDP
55%
18%
50.2% 46.1%
50%
46.0%
44.6%
45%
43.7%
42.9%
16%
44.5%
14%
40%
12%
35% 30%
Y/Y loan growth (RHS)
10%
24.5%
25.0%
25.1%
25.2%
25.5%
25.2%
25.8%
8%
25%
6%
20% 2007
2008
2009
CASA as % of total deposit
2010
2011
2012
4%
2013
2%
FD as % of total deposit
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: Bank Negara, CEIC
Source: Bank Negara, CEIC
61
AMMB Holdings Bhd (AMM) AMM (UW): Disappointing 1QFY15 core profit and bank will likely take two quarters to move
back above 12% RoE. Limited operating-leverage-driven RoE improvement in medium term. Bank will likely face challenges in delivering RoE expansion in a rising rate environment Cost of funds has started moving up and this will likely continue due to low CASA ratio of 21% Structural investment case on improving non-II revenues and cost control remains
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Key upside risks: faster-than-expected balance sheet growth and a stake increase by ANZ Key downside risks: Higher NIM compression and slower loan growth We are UW on AMM with a two-stage DDM methodology derived Jun-15 PT of M$6.20 based
on: RFR of 4.25% CoE of 10.75%, Normalized RoE of 12.2%, and terminal growth of 2.25%. 1QFY15 core RoE at 9.8%, likely to take two Qs to move back >12%
CoF has started moving up 3.8% 3.6% 3.4%
16.0% 15.7%
3.63%
3.12%
3.2%
3.21%
3.15%
14.9% 13.7%
14.0%
3.20%
12.0%
2 8% 2.8%
13.2%
14.2%
13.0%
2.88%
3.0%
15.0%
15.0%
3.42%
3.34%
15.2%
13.2%
13.5%
11.7% 10.7%
11.0%
2.6%
10.0%
2.67%
2.4% FY09
FY10
FY11
FY12
FY13
Source: Company data and J.P. Morgan estimates.
FY14
FY15E
FY16E
9.8%
9.0%
FY17E
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15E 3Q15E 4Q15E Source: Company data and J.P. Morgan estimates.
62
AMM: Annual Income Statement Income Statement
M$ m n Interest Income
2011
2012
2013
2014
2015E
2016E
2017E
4,750
5,269
5,813
6,173
6,471
6,491
7,264
8,067
(2,401)
(2,061)
(2,402)
(2,786)
(3,045)
(3,232)
(3,421)
(3,796)
(4,296)
2,368
2,689
2,868
3,028
3,127
3,239
3,070
3,468
3,772
457
535
596
613
631
714
740
812
884
230
289
582
341
238
235
287
349
121
124
172
117
250
472
566
680
815
Other operating income
6
19
22
14
31
75
75
82
90
Non-Interest Incom e
579
908
1,079
1,326
1,290
1,538
1,616
1,861
2,138
2,947
3,597
3,947
4,353
4,417
4,778
4,686
5,329
5,910
Costs
(1,288)
(1,521)
(1,595)
(1,843)
(2,103)
(2,189)
(2,297)
(2,461)
(2,636)
PPOP
1,659
2,076
2,351
2,510
2,314
2,588
2,390
2,868
3,274
Net Interest Incom e Fee income LIQUIDITY POSES GROWTH CHALLENGES
2010
4,769
Interest Ex pense
ASEA AN Bank ks
2009
Inv estment income Life Insurance Income
Total Revenues
Loan loss prov isions Impairment Loss Pre-Tax Tax
(6)
(344)
(569)
(475)
(382)
(173)
(68)
(135)
(97)
(130)
(10)
(94)
30
(64)
(32)
1,218 (339)
1,377 (334)
(474)
(501)
878
MI & EO
(17)
Net profits
861
1 009 1,009
1 343 1,343
1 484 1,484
0
0
0
0
861
1,009
1,343
1,484
Reported profits
(34)
1,391
2,034
Profit before MI
Disposals/ Ex ceptionals
1,043
1,865
(48)
1,533 (48)
Source: Company data, J.P. Morgan estimates.
63
2,184 (475) 1,709 (43) 1 666 1,666 (45) 1,621
2,478 (577) 1,900 (89) 1 812 1,812 (29) 1,782
2,223 (518) 1,705 (89)
(244)
(325)
0
0
2,624
2,949
(611) 2,012 (106)
(687) 2,262 (128)
1 616 1,616
1 906 1,906
2 134 2,134
208
0
0
1,824
1,906
2,134
AMM: Annual DuPont Analysis ROE breakdown 2009
2010
2011
2012
2013
2014
2015E
2016E
2017E
Av g. IEA Yield
5.97%
5.50%
5.55%
5.59%
5.44%
5.38%
5.24%
5.57%
5.80%
Av g. IBL Cost
-3.34%
-2.67%
-2.88%
-3.12%
-3.21%
-3.15%
-3.20%
-3.42%
-3.63%
NIM (% of avg. IEA)
2.97%
3.11%
3.02%
2.91%
2.76%
2.69%
2.48%
2.66%
2.71%
IEA/Assets
92.3%
92.7%
92.7%
94.0%
94.4%
92.5%
92.7%
93.9%
94.1%
Margins (% of avg. A
2.74%
2.89%
2.80%
2.74%
2.60%
2.49%
2.30%
2.50%
2.55%
19.64%
25.24%
27.34%
30.45%
29.20%
32.20%
34.49%
34.93%
36.18%
Non-IR/Av g. Assets
0.67%
0.97%
1.05%
1.20%
1.07%
1.18%
1.21%
1.34%
1.45%
Revenue/Assets
3.41%
3.86%
3.86%
3.94%
3.67%
3.68%
3.51%
3.84%
4.00%
43.71%
42.30%
40.42%
42.35%
47.60%
45.82%
49.01%
46.18%
44.60%
C/Assets
1.49%
1.63%
1.56%
1.67%
1.75%
1.68%
1.72%
1.77%
1.78%
Pre-Provision Pre Provision ROA
1.92%
2.23%
2.30%
2.27%
1.92%
1.99%
1.79%
2.07%
2.22%
LLP/Loans
-0.61%
-0.91%
-0.69%
-0.51%
-0.21%
-0.08%
-0.15%
-0.25%
-0.31%
Loan/Assets
65.7%
67.1%
67.5%
67.7%
67.6%
67.0%
68.8%
70.3%
70.7%
-0.11%
-0.14%
-0.01%
-0.09%
0.04%
-0.03%
-0.02%
0.00%
0.00%
OpRoA
1.52%
1.62%
1.83%
1.92%
1.78%
1.94%
1.69%
1.89%
2.00%
Pre Tax ROA Pre-Tax
1 41% 1.41%
1 48% 1.48%
1 82% 1.82%
1 84% 1.84%
1 82% 1.82%
1 91% 1.91%
1 66% 1.66%
1 89% 1.89%
2 00% 2.00%
-27.9%
-24.3%
-25.4%
-24.6%
-21.8%
-23.3%
-23.3%
-23.3%
-23.3%
Core ROA
0.99%
1.08%
1.31%
1.34%
1.39%
1.39%
1.21%
1.37%
1.45%
ROA
0.99%
1.08%
1.31%
1.34%
1.35%
1.37%
1.37%
1.37%
1.45%
Core RoRWA
1.34%
1.51%
1.77%
1.76%
1.85%
1.92%
1.67%
1.89%
1.99%
R RWA RoRWA
1 34% 1.34%
1 51% 1.51%
1 77% 1.77%
1 76% 1.76%
1 80% 1.80%
1 89% 1.89%
1 88% 1.88%
1 89% 1.89%
1 99% 1.99%
8.6%
9.3%
9.7%
9.7%
9.6%
9.7%
10.2%
10.5%
10.5%
Core ROE
11.6%
11.6%
13.5%
13.9%
14.4%
14.4%
11.9%
13.1%
13.7%
ROE
11.6%
11.6%
13.5%
13.9%
14.0%
14.1%
13.4%
13.1%
13.7%
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Non-IR contribution
Cost/Income
Other Income/Assets
Tax Rate
Equity /Assets
Source: Company data, J.P. Morgan estimates.
64
AMM: Quarterly Income Statement Income Statement
M$ m n
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Interest Income
1Q13 1 475 1,475
2Q13 1 530 1,530
3Q13 1 548 1,548
4Q13 1 620 1,620
1Q14 1 602 1,602
2Q14 1 569 1,569
3Q14 1 600 1,600
4Q14 1 700 1,700
1Q15 1 526 1,526
2Q15E
3Q15E
4Q15E
1 563 1,563
1 647 1,647
1 722 1,722
Interest Ex pense
(720)
(756)
(785)
(785)
(789)
(804)
(821)
(817)
(803)
(825)
(874)
(919)
Net Interest Income
755
774
763
836
814
765
779
882
724
738
773
804
Fee income
166
156
170
139
175
190
164
185
165
177
195
203
Inv estment income
129
69
119
25
71
70
136
(38)
72
62
58
42
Life Insurance Income
37
9
69
136
122
133
136
80
115
132
152
167
Other operating income
6
3
16
7
13
30
16
16
9
12
25
28
Non-Interest Incom e
347
247
381
315
392
434
465
248
367
384
431
435
1,102
1,021
1,143
1,151
1,205
1,199
1,243
1,130
1,091
1,122
1,204
1,239
Total Revenues C Costs
(4 ) (477)
(4 4) (474)
( 40) (540)
(612)
( 86) (586)
( 9) (579)
( 2) (552)
(4 2) (472)
( 3) (553)
( 9) (559)
( 88) (588)
( 9 ) (597)
PPOP
625
547
603
539
619
620
691
658
538
562
616
642
Loan loss prov isions
(15)
(13)
(69)
(76)
20
11
(35)
(64)
(21)
(30)
(31)
(52)
7
(0)
29
(6)
(8)
(28)
(28)
(0)
(32)
0
0
0
Impairment Loss Pre-Tax Pre Tax
616
534
564
470
637
603
629
608
486
532
585
588
Tax
(163)
(141)
(126)
(46)
(154)
(139)
(176)
(109)
(126)
(137)
(151)
(104)
MI & EO
(11)
(12)
4
(24)
(22)
(23)
(25)
(20)
(31)
(20)
(20)
(18)
Net profits
443
380
442
401
462
442
429
479
329
374
414
467
0
0
0
0
(17)
208
0
0
0
443
380
401
462
462
537
374
414
467
Disposals/ Ex ceptionals Reported profits
(46) 396
Source: Company data, J.P. Morgan estimates.
65
(6) 436
(6) 423
AMM: Quarterly DuPont Analysis ROE breakdown 1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15E
3Q15E
4Q15E
NIM (% of avg. IEA)
2.81%
2.79%
2.68%
2.87%
2.72%
2.53%
2.55%
2.90%
2.44%
2.49%
2.53%
2.57%
IEA/Assets
94.1%
92.9%
92.7%
93.1%
94.0%
94.3%
93.9%
92.5%
92.5%
93.7%
93.8%
93.9%
2.6%
2.6%
2.5%
2.7%
2.6%
2.4%
2.4%
2.7%
2.3%
2.3%
2.4%
2.4%
Non-IR contribution
31.5%
24.2%
33.3%
27.4%
32.5%
36.2%
37.4%
22.0%
33.6%
34.2%
35.8%
35.1%
Non-IR/Av g. Assets
1.2%
0.8%
1.2%
1.0%
1.2%
1.4%
1.4%
0.8%
1.1%
1.2%
1.3%
1.3%
Rev enue/Assets
3.9%
3.4%
3.7%
3.7%
3.8%
3.7%
3.8%
3.4%
3.4%
3.5%
3.7%
3.7%
43.3%
46.4%
47.2%
53.2%
48.6%
48.3%
44.4%
41.8%
50.7%
49.9%
48.8%
48.2%
1.7%
1.6%
1.8%
2.0%
1.8%
1.8%
1.7%
1.4%
1.7%
1.8%
1.8%
1.8%
Pre-Provision ROA
2.19%
1.83%
1.96%
1.72%
1.94%
1.93%
2.13%
2.00%
1.67%
1.78%
1.89%
1.92%
LLP/Loans
-0.1%
-0.1%
-0.3%
-0.4%
0.1%
0.0%
-0.2%
-0.3%
-0.1%
-0.1%
-0.1%
-0.2%
Loan/Assets
68.4% %
66.7% %
66.1% %
66.6% %
67.1% %
67.2% %
66.4% %
66.9% %
68.8% %
70.1% %
69.7% %
69.9% %
0.0%
0.0%
0.1%
0.0%
0.0%
-0.1%
-0.1%
0.0%
-0.1%
0.0%
0.0%
0.0%
2.13%
1.79%
1.74%
1.48%
2.01%
1.97%
2.02%
1.80%
1.61%
1.68%
1.79%
1.77%
2.2%
1.8%
1.8%
1.5%
2.0%
1.9%
1.9%
1.8%
1.5%
1.7%
1.8%
1.8%
-26.4%
-26.5%
-22.3%
-9.7%
-24.1%
-23.0%
-27.9%
-17.9%
-25.8%
-25.8%
-25.8%
-17.6%
Disposals/ Ex ceptionals
0 0% 0.0%
0 0% 0.0%
-0 1% -0.1%
0 0% 0.0%
0 0% 0.0%
0 0% 0.0%
0 0% 0.0%
-0 1% -0.1%
0 6% 0.6%
0 0% 0.0%
0 0% 0.0%
0 0% 0.0%
Minorities & Outside Int.
0.0%
0.0%
0.0%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
Preference div idends
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Core ROA
1.55%
1.27%
1.44%
1.28%
1.45%
1.38%
1.32%
1.45%
1.03%
1.18%
1.27%
1.40%
ROA
1.55%
1.27%
1.59%
1.28%
1.45%
1.40%
1.34%
1.51%
0.38%
1.18%
1.27%
1.40%
C Core RoRWA R RWA
2 01% 2.01%
1 67% 1.67%
1 92% 1.92%
1 74% 1.74%
1 97% 1.97%
1 88% 1.88%
1 81% 1.81%
1 99% 1.99%
1 38% 1.38%
1 59% 1.59%
1 74% 1.74%
1 92% 1.92%
RoRWA
2.01%
1.67%
2.12%
1.74%
1.97%
1.91%
1.84%
2.06%
0.51%
1.59%
1.74%
1.92%
9.9%
9.7%
9.5%
9.5%
9.6%
9.7%
9.7%
9.8%
10.5%
11.0%
10.8%
10.6%
15.65%
13.19%
15.17%
13.47%
15.03%
14.17%
13.68%
14.86%
9.76%
10.75%
11.71%
13.21%
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Margins (% of av g. Ass
Cost/Income C/Assets
Other Income/Assets OpRoA Pre-Tax ROA Tax Rate
Equity /Assets Core ROE
Source: Company data, J.P. Morgan estimates.
66
Maybank (MAY) MAY (OW): Operating leverage and deposit franchise to aid RoE Shift in strategy from Growth to RoE (14%-15% over the next two years) Revenue upside to stem primarily from:
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
– – – –
From higher F hi h d deposit it spreads d Pick-up in Islamic bonds and loans (No.3 in global league tables YTD) Pick-up in ETP related loans, where approvals are in place Increase in treasury cross-sell and bancassurance
Operating leverage to lead to positive pass through to the bottom-line We hold an OW with a 2-stage DDM based Jun-15 PT of M$11.0. We use a fair P/BV multiple
of 1.68x, with a normalized RoE of 14.2%. Key downside risks include a value-eroding regional i ld deal, l hi higher-than-expected h th t d weakness k in i IIndonesia d i (4% PBT) and d NIM pressure in i Malaysia Above industry PPOP RoA
Source: Company
Top 10 Islamic finance underwriter YTD Rank
Underwriter
1 2 3 4 5 6 7 8 9 10
HSBC Bank PLC CIMB Maybank q Saudi Fransi Banque Standard Chartered Bank AmInvestment Bank Bhd JP Morgan RHB National Commercial Bank Deutsche Bank AG
Source: Bloomberg
67
Mkt Share 11.5% 11.2% 8.6% 5.9% 5.6% 5.5% 4.5% 3.9% 3.9% 3.8%
Amount (US$ mn) 3,432 3,360 2,555 1,773 , 1,668 1,651 1,344 1,180 1,151 1,136
Issues 27 67 55 3 28 30 4 39 3 5
MAY: Annual Income Statement
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Income Statement (M$MM)
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
2016E
Net Interest Income
4 481 4,481
5 133 5,133
5 427 5,427
6 931 6,931
8 085 8,085
8 685 8,685
4 911 4,911
11 338 11,338
12 023 12,023
12 838 12,838
14 812 14,812
17 556 17,556
Fee income
1,195
1,488
1,775
2,058
2,367
2,671
1,567
3,173
3,544
3,945
4,459
5,071
Inv estment income
922
622
616
410
1,082
1,172
577
1,776
2,081
2,213
2,390
2,582
Islamic banking income
891
858
965
(0)
(0)
0
0
0
0
0
0
0
Other operating income
599
805
780
402
244
272
230
380
257
283
317
355
0
0
0
197
425
557
321
(48)
261
287
330
379
Non-Interest Income
3,607
3,773
4,136
3,067
4,118
4,672
2,695
5,280
6,143
6,729
7,496
8,387
Total Revenues
8,088
8,905
9,563
9,998
12,203
13,357
7,606
16,618
18,166
19,567
22,308
25,943
Costs
(3,207)
(3,789)
(4,249)
(5,038)
(5,705)
(6,589)
(3,908)
(8,077)
(8,556)
(9,240) (10,164) (11,181)
PPOP
4 881 4,881
5,117 11
5,315 31
4 960 4,960
6 498 6,498
6 68 6,768
3 69 3,697
8 41 8,541
9 610 9,610
10 32 10,327
12 144 12,144
14 62 14,762
(883)
(746)
(1,294)
(1,215)
(1,226)
(502)
(329)
(679)
(730)
(873)
(1,376)
(2,059)
Impairment Loss
0
0
66
(197)
(23)
(130)
(67)
(118)
(151)
(151)
(151)
(151)
Associate
(9)
(7)
(1)
100
122
135
74
152
139
167
201
241
Pre-Tax
3 988 3,988
4 364 4,364
4 086 4,086
3 647 3,647
5 370 5,370
6 270 6,270
3 375 3,375
7 896 7,896
8 870 8,870
9 470 9,470
10 818 10,818
12 794 12,794
Tax
(1,153)
(1,111)
(1,084)
(924)
(1,402)
(1,651)
(887)
(1,978)
(2,098)
(2,240)
(2,559)
(3,027)
Profit before MI
2,835
3,253
3,002
2,723
3,968
4,620
2,488
5,919
6,771
7,230
8,259
9,767
(62)
(74)
(74)
(59)
(150)
(169)
(93)
(173)
(219)
(263)
(315)
(378)
2,772
3,178
2,928
2,664
3,818
4,450
2,395
5,746
6,552
6,967
7,944
9,389
0
0
0
(1,973)
0
0
188
0
0
0
0
0
2,772
3,178
2,928
692
3,818
4,450
2,583
5,746
6,552
6,967
7,944
9,389
Insurance Income
Loan loss prov isions
MI and EO Core Profits Disposals/Ex ceptional Net Profits
Source: Company data, J.P. Morgan estimates.
68
2011P
MAY: Annual DuPont Analysis
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
ROE breakdown 2006
2007
2008
2009
2010
2011
2011P
2012
2013
2014E
2015E
2016E
Av g. IEA Yield
4.46%
4.91%
4.48%
5.06%
4.45%
4.32%
2.15%
4.33%
4.21%
4.22%
4.48%
4.81%
Av g. IBL Cost
-2.49%
-2.93%
-2.48%
-2.63%
-1.81%
-1.92%
-1.03%
-2.05%
-2.05%
-2.19%
-2.42%
-2.66%
NIM (% of avg. IEA)
2.29%
2.32%
2.26%
2.65%
2.78%
2.57%
2.45%
2.52%
2.40%
2.27%
2.33%
2.45%
IEA/Assets
94.0%
92.0%
91.3%
90.2%
89.9%
90.2%
92.8%
95.0%
94.9%
95.0%
95.1%
95.2%
Margins (% of avg. Asset
2.15%
2.13%
2.06%
2.39%
2.50%
2.32%
2.27%
2.40%
2.28%
2.16%
2.22%
2.33%
Non-IR contribution
44.6%
42.4%
43.3%
30.7%
33.7%
35.0%
35.4%
31.8%
33.8%
34.4%
33.6%
32.3%
Non-IR/Av g. Assets
1.73%
1.57%
1.57%
1.06%
1.27%
1.25%
1.25%
1.12%
1.16%
1.13%
1.12%
1.11%
Revenue/Assets
3.89%
3.70%
3.64%
3.45%
3.77%
3.57%
3.52%
3.51%
3.44%
3.29%
3.34%
3.45%
Cost/Income
39.7%
42.5%
44.4%
50.4%
46.8%
49.3%
51.4%
48.6%
47.1%
47.2%
45.6%
43.1%
C/Assets
1.54%
1.58%
1.62%
1.74%
1.76%
1.76%
1.81%
1.71%
1.62%
1.55%
1.52%
1.49%
Pre-Provision ROA
2.35%
2.13%
2.02%
1.71%
2.01%
1.81%
1.71%
1.80%
1.82%
1.74%
1.82%
1.96%
LLP/Loans
-0.67%
-0.52%
-0.81%
-0.67%
-0.60%
-0.21%
-0.24%
-0.23%
-0.21%
-0.23%
-0.33%
-0.43%
Loan/Assets
63.8%
59.3%
60.6%
62.9%
62.8%
63.4%
63.0%
63.5%
64.4%
63.9%
63.2%
63.1%
Other Income/Assets
0.00%
0.00%
0.02%
-0.03%
0.03%
0.00%
0.00%
0.01%
0.00%
0.00%
0.01%
0.01%
Operating ROA
1.92%
1.81%
1.55%
1.26%
1.66%
1.68%
1.56%
1.67%
1.68%
1.59%
1.62%
1.70%
Pre-Tax ROA
1.92%
1.81%
1.55%
1.26%
1.66%
1.68%
1.56%
1.67%
1.68%
1.59%
1.62%
1.70%
Tax Rate
-28.9%
-25.5%
-26.5%
-25.3%
-26.1%
-26.3%
-26.3%
-25.0%
-23.7%
-23.7%
-23.7%
-23.7%
Minorities & Outside Int.
-0.03%
-0.03%
-0.03%
-0.02%
-0.05%
-0.05%
-0.04%
-0.04%
-0.04%
-0.04%
-0.05%
-0.05%
Core ROA
1.33%
1.32%
1.11%
0.92%
1.18%
1.19%
1.11%
1.21%
1.24%
1.17%
1.19%
1.25%
RoRWA
1.88%
1.88%
1.55%
0.33%
1.62%
1.81%
2.04%
2.12%
2.22%
2.13%
2.16%
2.27%
8.0%
7.5%
7.3%
7.6%
8.2%
7.9%
7.6%
8.1%
8.3%
8.2%
8.3%
8.4%
16.7%
17.7%
15.2%
3.1%
14.5%
15.0%
15.7%
15.0%
14.9%
14.2%
14.3%
14.9%
Equity /Assets ROE
Source: Company data, J.P. Morgan estimates.
69
MAY: Quarterly Income Statement Income Statement (M$MM)
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2,728
2,851
2,897
2,862
3,018
2,995
2,975
3,035
3,032
3,101
3,281
3,424
Fee income
769
932
741
731
860
924
840
921
785
985
1,072
1,103
Inv estment income
740
357
456
224
426
750
633
272
410
546
507
750
Other operating income
116
92
93
78
79
71
65
42
37
110
110
26
Insurance Income
(162)
136
124
(147)
(78)
37
265
36
2
38
150
98
Non-Interest Incom e
1,463
1,517
1,414
886
1,286
1,783
1,804
1,270
1,234
1,679
1,839
1,977
Total Revenues
4,191
4,367
4,311
3,748
4,304
4,778
4,779
4,305
4,266
4,780
5,120
5,401
Costs
(2,145) (2,144) (2,221) (1,567) (2,129) (2,294) (2,169) (1,965) (1,999) (2,212) (2,407) (2,621)
PPOP
2 047 2,047
2 223 2,223
2 090 2,090
2 181 2,181
2 175 2,175
2 484 2,484
2 611 2,611
2 341 2,341
2 267 2,267
2 568 2,568
2 713 2,713
2 780 2,780
(185)
(200)
(77)
(217)
(86)
(428)
(280)
65
(210)
(223)
(230)
(210)
Impairment Loss
(2)
(44)
(24)
(48)
2
(9)
(22)
(122)
115
(100)
(100)
(65)
Associate
35
48
36
34
35
42
45
18
36
36
36
58
1 895 1,895
2 026 2,026
2 025 2,025
1 950 1,950
2 127 2,127
2 089 2,089
2 352 2,352
2 302 2,302
2 208 2,208
2 281 2,281
2 420 2,420
2 562 2,562
(529)
(546)
(490)
(412)
(568)
(466)
(559)
(505)
(573)
(525)
(556)
(586)
(19)
(42)
(34)
(78)
(52)
(55)
(47)
(64)
(33)
(33)
(33)
(164)
1,347
1,438
1,501
1,460
1,506
1,568
1,746
1,732
1,602
1,723
1,830
1,812
0
0
0
0
0
0
0
0
0
0
0
0
1,347
1,438
1,501
1,460
1,506
1,568
1,746
1,732
1,602
1,723
1,830
1,812
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Net Interest Income
Loan loss prov isions
P T Pre-Tax Tax MI and EO Core Profits Disposals/E ceptional Disposals/Ex Net Profits
Source: Company data, J.P. Morgan estimates.
70
2Q14E 3Q14E 4Q14E
MAY: Quarterly DuPont Analysis
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
ROE breakdown (M$MM)
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14E
3Q14E
4Q14E
NIM (% of avg. avg IEA)
2 59% 2.59%
2 62% 2.62%
2 63% 2.63%
2 54% 2.54%
2 53% 2.53%
2 42% 2.42%
2 33% 2.33%
2 32% 2.32%
2 24% 2.24%
2 24% 2.24%
2 31% 2.31%
2 33% 2.33%
IEA/Assets
92.1%
91.0%
91.0%
92.9%
94.8%
94.5%
94.5%
94.8%
94.9%
94.9%
94.9%
95.0%
Margins (% of avg. As 2.39%
2.39%
2.39%
2.36%
2.40%
2.28%
2.20%
2.20%
2.13%
2.13%
2.19%
2.21%
Non-IR contribution
34.9%
34.7%
32.8%
23.6%
29.9%
37.3%
37.7%
29.5%
28.9%
35.1%
35.9%
36.6%
g. Assets Non-IR/Av g
1.28%
1.27%
1.17%
0.73%
1.02%
1.36%
1.34%
0.92%
0.87%
1.15%
1.23%
1.28%
Revenue/Assets
3.67%
3.66%
3.56%
3.09%
3.42%
3.64%
3.54%
3.12%
3.00%
3.28%
3.42%
3.49%
Cost/Income
51.2%
49.1%
51.5%
41.8%
49.5%
48.0%
45.4%
45.6%
46.9%
46.3%
47.0%
48.5%
C/Assets
1.88%
1.80%
1.83%
1.29%
1.69%
1.75%
1.61%
1.42%
1.40%
1.52%
1.61%
1.69%
Pre-Provision ROA
1.79%
1.86%
1.73%
1.80%
1.73%
1.90%
1.93%
1.70%
1.59%
1.76%
1.81%
1.80%
LLP/Loans
-0.26% -0.27% -0.10% -0.28% -0.11% -0.52% -0.33%
Loan/Assets
62.2%
61.5%
62.5%
63.9%
63.6%
62.4%
62.3%
Other Income/Assets
0.01%
0.00%
0.00%
0.00%
0.01%
0.01%
Operating ROA
1.63%
1.69%
1.66%
1.62%
1.66%
P T ROA Pre-Tax
1 64% 1.64%
1 69% 1.69%
1 66% 1.66%
1 61% 1.61%
1 67% 1.67%
Tax Rate Core ROA
0.07% -0.23% -0.24% -0.24% -0.21% 63.6%
63.9%
63.5%
63.5%
63.4%
0.00% -0.02%
0.03% -0.01% -0.01%
0.00%
1.57%
1.73%
1.74%
1.45%
1.61%
1.66%
1.66%
1 57% 1.57%
1 73% 1.73%
1 72% 1.72%
1 47% 1.47%
1 60% 1.60%
1 65% 1.65%
1 66% 1.66%
-27.9% -27.0% -24.2% -21.1% -26.7% -22.3% -23.7% -22.0% -26.0% -23.0% -23.0% -22.9% 1.17%
1.23%
1.25%
1.26%
1.21%
1.21%
1.31%
1.33%
1.08%
1.22%
1.26%
1.25%
Core RoRWA
2.0%
2.1%
2.2%
2.2%
2.1%
2.1%
2.3%
2.4%
2.0%
2.2%
2.3%
2.3%
Equity/Assets
7 5% 7.5%
7 4% 7.4%
7 6% 7.6%
8 2% 8.2%
8 5% 8.5%
8 4% 8.4%
8 3% 8.3%
8 2% 8.2%
8 3% 8.3%
8 2% 8.2%
8 2% 8.2%
8 3% 8.3%
15.7%
16.6%
16.5%
15.4%
14.3%
14.5%
15.9%
16.3%
13.1%
14.9%
15.4%
15.2%
Core ROE
Source: Company data, J.P. Morgan estimates.
71
Public Bank (PBK) PBK (N): Expect stock to stay range-bound Bank in the process of optimizing the non-II stream to support its RoE post the capital call M$4.8bn rights in 3Q14 will dilute the RoE by ~320bp, leading to lower multiples, partly offset
by higher book-value 73% of book is variable rate, which will benefit from higher rates
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
CASA rates at the bank will likely stay stable for 25bp OPR hike and may move ~5bp for 50bp
policy y rates move in p Our Jun-15 PT of M$19.0 is based on a two-stage DDM methodology. Our price target is
based on the following valuation assumptions: RFR of 4.25%, CoE of 8.75%, normalized RoE of 17.18% and terminal growth of 2.25%. Key upside risks include higher-than-expected margins i d due tto OPR hikes hik and d hi higher h lloan growth. th Th The kkey d downside id risk i k iis hi higher h NPL NPLs iin the consumer segment. Asset liability spread
CASA ratio
3 00% 3.00%
25 6% 25.6%
2.50%
25.4% 25.2%
2.00%
25.5% 25.3%
25.0%
1.50%
24.8% %
1.00%
24.6%
0.50%
24.4%
25.2% 25.0%
24 9% 24.9% 24.6%
24.2%
0.00% 2011
2012 NIM
2013
2014E
Asset Spread
Source: Company data and J.P.Morgan estimates
2015E
2016E
24.0% 2011
Liability Spread
2012
2013
Source: Company data and J.P.Morgan estimates
72
2014E
2015E
2016E
PBK: Annual Income Statement
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Income Statement (M$MM)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
2016E
Interest Income
4,574
6,145
8,181
9,125
8,365
9,340
10,823
11,900
12,909
14,303
16,346
18,609
Interest Ex pense
(2,132)
(3,275)
(4,459)
(4,839)
(3,637)
(3,961)
(4,979)
(5,802)
(6,501)
(7,366)
(8,340)
(9,440)
Net Interest Income
2,443
2,870
3,722
4,286
4,728
5,379
5,843
6,098
6,408
6,937
8,006
9,169
Fee income
531
616
1,028
975
856
1,032
1,119
1,165
1,275
1,422
1,587
1,771
Inv estment income
170
244
347
263
330
380
384
396
400
440
484
532
Other operating income
217
247
14
215
44
48
63
87
75
79
83
87
Non-Interest Income
1,310
1,535
1,389
1,454
1,230
1,460
1,565
1,648
1,751
1,941
2,154
2,391
Total Revenues
3,752
4,405
5,111
5,739
5,958
6,839
7,409
7,747
8,158
8,878
10,160
11,560
C t Costs
(1 330) (1,330)
(1 532) (1,532)
(1 694) (1,694)
(1 791) (1,791)
(1 943) (1,943)
(2 100) (2,100)
(2 209) (2,209)
(2 418) (2,418)
(2 504) (2,504)
(2 654) (2,654)
(2 972) (2,972)
(3 329) (3,329)
PPOP
2,422
2,873
3,418
3,948
4,015
4,738
5,200
5,329
5,655
6,224
7,187
8,231
(382)
(466)
(407)
(549)
(691)
(660)
(327)
(279)
(351)
(511)
(647)
(806)
15
5
(12)
(33)
(15)
(5)
2
(7)
0
(5)
(5)
(5)
4
5
5
12
12
13
3
4
6
6
6
6
2,059
2,416
3,004
3,379
3,321
4,086
4,878
5,047
5,310
5,715
6,542
7,426
(514)
(621)
(802)
(757)
(770)
(987)
(1,153)
(1,178)
(1,204)
(1,296)
(1,484)
(1,684)
1,545
1,795
2,202
2,623
2,552
3,099
3,725
3,869
4,106
4,419
5,058
5,742
(86)
(68)
(78)
(41)
(34)
(51)
(40)
(42)
(41)
(45)
(50)
(55)
1,459
1,727
2,124
2,581
2,517
3,048
3,684
3,827
4,065
4,374
5,009
5,687
Loan loss prov isions Impairment Loss A Associate i t Pre-Tax Tax Profit before MI MI & EO Reported profits
Source: Company data, J.P. Morgan estimates.
73
PBK : Annual DuPont Analysis ROE breakdown
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
2016E
NIM (% of avg avg. IEA)
2 48% 2.48%
2 29% 2.29%
2 39% 2.39%
2 39% 2.39%
2 36% 2.36%
2 50% 2.50%
2 56% 2.56%
2 38% 2.38%
2 26% 2.26%
2 19% 2.19%
2 28% 2.28%
2 37% 2.37%
IEA/Assets
96.9%
96.7%
96.7%
96.8%
97.0%
97.2%
95.8%
97.7%
97.8%
98.0%
98.1%
98.2%
Margins (% of avg. As
2.40%
2.21%
2.31%
2.31%
2.29%
2.43%
2.45%
2.32%
2.21%
2.15%
2.24%
2.33%
35%
35%
27%
25%
21%
21%
21%
21%
21%
22%
21%
21%
Non-IR/Av g. Assets
1.29%
1.18%
0.86%
0.79%
0.60%
0.66%
0.66%
0.63%
0.60%
0.60%
0.60%
0.61%
Revenue/Assets
3.68%
3.40%
3.18%
3.10%
2.88%
3.08%
3.11%
2.95%
2.81%
2.75%
2.84%
2.94%
Cost/Income
35.5%
34.8%
33.1%
31.2%
32.6%
30.7%
29.8%
31.2%
30.7%
29.9%
29.3%
28.8%
C/Assets
1.31%
1.18%
1.05%
0.97%
0.94%
0.95%
0.93%
0.92%
0.86%
0.82%
0.83%
0.85%
Pre-Provision ROA
2.38%
2.21%
2.12%
2.13%
1.94%
2.14%
2.18%
2.03%
1.95%
1.93%
2.01%
2.09%
LLP/Loans
-0.61% 0 61%
-0.61% 0 61%
-0.44% 0 44%
-0.50% 0 50%
-0.54% 0 54%
-0.45% 0 45%
-0.20% 0 20%
-0.15% 0 15%
-0.17% 0 17%
-0.22% 0 22%
-0.25% 0 25%
-0.28% 0 28%
Loan/Assets
61.0%
58.5%
57.5%
59.8%
62.4%
66.3%
70.1%
71.5%
72.2%
72.1%
72.1%
72.6%
Other Income/Assets
0.02%
0.01%
0.00%
-0.01%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Operating ROA
2.00%
1.86%
1.87%
1.84%
1.61%
1.84%
2.04%
1.92%
1.83%
1.77%
1.83%
1.89%
Pre-Tax ROA
2.02%
1.86%
1.87%
1.83%
1.61%
1.84%
2.05%
1.92%
1.83%
1.77%
1.83%
1.89%
Tax Rate
-25.0%
-25.7%
-26.7%
-22.4%
-23.2%
-24.2%
-23.6%
-23.3%
-22.7%
-22.7%
-22.7%
-22.7%
Minorities & Outside Int.
-0.08%
-0.05%
-0.05%
-0.02%
-0.02%
-0.02%
-0.02%
-0.02%
-0.01%
-0.01%
-0.01%
-0.01%
ROA
1.43%
1.33%
1.32%
1.39%
1.22%
1.37%
1.55%
1.46%
1.40%
1.35%
1.40%
1.45%
RoRWA
2.34%
2.30%
2.34%
2.41%
2.09%
2.29%
2.42%
2.23%
2.14%
2.07%
2.14%
2.21%
8.4%
6.8%
5.7%
5.1%
5.0%
5.4%
6.0%
6.4%
6.6%
7.4%
8.1%
8.2%
17.0%
19.6%
23.1%
27.3%
24.5%
25.3%
25.6%
22.7%
21.1%
18.2%
17.2%
17.6%
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Non-IR contribution
Equity /Assets ROE
Source: Company data, J.P. Morgan estimates.
74
PBK : Quarterly Income Statement Income Statement
M$mn
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14 3Q14E 4Q14E
Interest Income
2 854 2,854
2 930 2,930
3 030 3,030
3 086 3,086
3 116 3,116
3 209 3,209
3 278 3,278
3 305 3,305
3 334 3,334
3 438 3,438
Interest Ex pense
(1,374) (1,418) (1,466) (1,543) (1,559) (1,613) (1,641) (1,688) (1,725) (1,813) (1,907) (1,921)
Net Interest Income
1,479
1,512
1,564
1,543
1,557
1,596
1,637
1,617
1,609
1,625
1,720
1,983
284
288
297
296
303
322
316
334
323
347
374
379
I estment Inv t t iincome
92
96
113
95
101
101
106
92
115
111
106
109
Other operating income
13
22
13
39
19
23
16
17
18
16
15
30
Non-Interest Income
389
406
423
430
423
446
439
443
455
474
494
518
1,869
1,918
1,987
1,973
1,980
2,042
2,076
2,060
2,064
2,100
2,214
2,501
Costs
(608)
(609)
(606)
(596)
(632)
(630)
(612)
(630)
(656)
(666)
(686)
(646)
PPOP
1,261
1,309
1,381
1,378
1,348
1,412
1,464
1,430
1,408
1,434
1,528
1,855
(30)
(84)
(81)
(84)
(81)
(76)
(103)
(90)
(85)
(65)
(82)
(279)
Impairment Loss
(1)
(1)
0
(5)
1
2
(4)
1
1
(0)
(0)
(6)
Associate
1
1
(1)
3
2
3
2
0
3
(1)
(1)
5
1,231
1,226
1,298
1,291
1,270
1,341
1,358
1,341
1,327
1,368
1,445
1,575
(293)
(273)
(317)
(295)
(291)
(306)
(301)
(306)
(300)
(300)
(317)
(380)
(8)
(11)
(9)
(15)
(11)
(11)
(10)
(9)
(10)
(11)
(12)
(12)
930
942
973
982
968
1,024
1,047
1,026
1,017
1,056
1,116
1,184
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Fee income
Total Revenues
Loan loss prov isions
Pre-Tax Tax MI & EO Reported profits
Source: Company data, J.P. Morgan estimates.
75
3 627 3,627
3 904 3,904
PBK : Quarterly DuPont Analysis ROE breakdown
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
NIM (% of avg avg. IEA)
2 40% 2.40%
2 39% 2.39%
2 40% 2.40%
2 32% 2.32%
2 27% 2.27%
2 25% 2.25%
2 26% 2.18% 2.26% 2 18% 2.13% 2 13% 2.09% 2 09% 2.13% 2 13% 2.39% 2 39%
IEA/Assets
97.6%
97.6%
97.6%
97.7%
97.8%
97.8%
97.8% 97.9% 97.9% 98.0% 98.0% 98.0%
Margins (% of avg. Assets 2.34%
2.33%
2.35%
2.27%
2.22%
2.20%
2.21% 2.14% 2.08% 2.04% 2.08% 2.34%
21%
21%
21%
22%
21%
22%
Non-IR/Av Non IR/Av g. Assets
0.62%
0.63%
0.63%
0.63%
0.60%
0.62%
0.59% 0.59% 0.59% 0.60% 0.60% 0.61%
Revenue/Assets
2.96%
2.96%
2.98%
2.90%
2.82%
2.82%
2.80% 2.72% 2.67% 2.64% 2.68% 2.95%
Cost/Income
32.5%
31.7%
30.5%
30.2%
31.9%
30.8%
29.5% 30.6% 31.8% 31.7% 31.0% 25.8%
C/Assets
0.96%
0.94%
0.91%
0.87%
0.90%
0.87%
0.83% 0.83% 0.85% 0.84% 0.83% 0.76%
Pre-Provision ROA
2.00%
2.02%
2.07%
2.02%
1.92%
1.95%
1.98% 1.89% 1.82% 1.80% 1.85% 2.19%
LLP/Loans
-0.07% -0.18% -0.17% -0.17% -0.16% -0.15% -0.19% -0.17% -0.15% -0.11% -0.14% -0.46%
Loan/Assets
71.2%
71.3%
71.3%
71.7%
71.4%
71.3%
71.8% 72.2% 72.4% 72.1% 71.2% 71.2%
Other Income/Assets
0.00%
0.00%
0.00%
0.00%
0.00%
0.01%
0.00% 0.00% 0.01% 0.00% 0.00% 0.00%
Operating ROA
1.95%
1.89%
1.95%
1.90%
1.80%
1.84%
1.84% 1.77% 1.71% 1.72% 1.75% 1.86%
Pre-Tax ROA
1.95%
1.89%
1.95%
1.90%
1.81%
1.85%
1.83% 1.77% 1.72% 1.72% 1.75% 1.86%
Tax Rate
-23.8% -22.3% -24.4% -22.8% -22.9% -22.8% -22.1% -22.8% -22.6% -21.9% -21.9% -24.1%
Minorities & Outside Int.
-0.01% -0.02% -0.01% -0.02% -0.02% -0.01% -0.01% -0.01% -0.01% -0.01% -0.01% -0.01%
ROA
1.47%
1.45%
1.46%
1.44%
1.38%
1.41%
1.41% 1.36% 1.32% 1.33% 1.35% 1.40%
RoRWA
2.25%
2.16%
2.17%
2.19%
2.12%
2.18%
2.17% 2.07% 2.01% 2.05% 2.11% 2.16%
6.2%
6.2%
6.3%
6.4%
6.4%
6.4%
23.7%
23.3%
23.2%
22.5%
21.5%
22.2%
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Non-IR contribution
Equity /Assets ROE
Source: Company data, J.P. Morgan estimates.
76
21%
6.5%
4Q13
21%
6.6%
1Q14
22%
6.6%
2Q14
23%
6.6%
3Q14E 4Q14E
22%
7.4%
21%
8.1%
21.9% 20.7% 19.9% 20.2% 18.3% 17.2%
Hong Leong Bank (HLBK) HLBK (OW): Turnaround in offing Expect high-quality, low-risk profit growth leading to consistent book value accretion and re-
rating Expect balance sheet leverage to improve, with most of the operational aspects bedded down
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Lowest total cost ratio across Asean should lead to meaningful leverage on revenues,
operating and credit metrics Our Jun-15 PT of M$16.50 is based upon 2-stage DDM. We use a fair P/BV multiple of 1.79x,
with a normalized RoE of 14.1%. Bank of Chengdu contributed 11% to PBT last year, which may be at risk in case of events in China. Also, HLBK is bidding for an Indonesian bank, which poses risk to our investment view. Balance sheet leverage to improve
Lowest credit costs across ASEAN
Source: Company data, J.P. Morgan estimates.
Source: Company data, J.P. Morgan estimates.
77
Key drivers Islamic banking contribution to PPOP to increase
Bank expects to regain Auto loan market share
24.0%
24% 23% 22% 21% 20% 19% 18% 17% 16% 15%
22 8% 22.8%
23.0% 22.0%
21.5% 20.6%
LIQUIDITY POSES GROWTH CHALLENGES
21.0%
ASEA AN Bank ks
22.3%
21.8%
20.3%
20.0%
20.0% 18.9%
19.0%
1Q14
2Q14
19.4%
19.0% 18.0% 3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
3Q14
Sources: Company reports
4Q14 Sources: Company data
Wealth management contribution to non-II and revenue
Credit card loans as % of total loans
5.4%
6.0% 5.0%
5.4% 5.2%
4.5% 3.9%
4.0%
5.0%
3.6%
4.8% 4.6%
3.0% 2.0%
16.6%
4 4% 4.4% 1.4%
1.2%
1.2%
1.3%
4.2% 4.0%
1.0%
3.8%
0.0% 2011 Sources: Company reports
2012
2013
2014 Sources: Company reports
78
4.0%
HLBK: Annual Income Statement
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Income Statement (M$MM)
2009
2010
2011
2012
2013
2014
2015E
2016E
Interest Income
4 823 4,823
4 357 4,357
3 255 3,255
5 441 5,441
6 464 6,464
6 576 6,576
7 529 7,529
8 488 8,488
Interest Ex pense
(2,524)
(1,999)
(1,599)
(2,839)
(3,495)
(3,480)
(4,067)
(4,705)
Net Interest Incom e
2,300
2,358
1,656
2,602
2,969
3,096
3,462
3,783
Fee income
541
568
391
597
592
595
641
683
I estment Inv t t iincome
251
221
257
204
427
321
363
395
Islamic banking income
379
422
227
448
0
0
0
0
Other operating income
38
43
21
27
20
27
26
27
Non-Interest Income
1,208
1,253
896
1,276
1,038
942
1,030
1,105
Total Revenues
3,508
3,611
2,552
3,878
4,007
4,038
4,492
4,888
Costs
(1,661)
(1,780)
(1,212)
(1,811)
(1,847)
(1,792)
(1,908)
(2,031)
PPOP
1,847
1,832
1,340
2,066
2,160
2,246
2,584
2,857
(324)
(274)
(137)
15
(41)
(52)
(70)
(114)
99
143
210
219
267
379
407
488
1,550
1,669
1,415
2,350
2,393
2,613
2,948
3,259
(289)
(341)
(278)
(493)
(537)
(511)
(649)
(717)
Profit before MI
1,261
1,329
1,137
1,857
1,856
2,102
2,300
2,542
Net profits
1,261
1,328
1,137
1,857
1,856
2,102
2,300
2,542
0
0
0
(114)
0
0
0
0
1,261
1,328
1,137
1,744
1,856
2,102
2,300
2,542
Loan loss prov isions Associate Pre-Tax Tax
Disposals/ Ex ceptionals Reported profits Source: Company data, J.P. Morgan estimates.
79
HLBK: Annual DuPont Analysis ROE breakdown
2009
2010
2011
2012
2013
2014
2015E
2016E
NIM (% of avg. IEA)
1.94%
1.91%
1.24%
1.79%
1.92%
1.93%
1.94%
1.99%
IEA/Assets
96.5%
96.5%
96.1%
96.0%
96.1%
96.2%
96.1%
96.2%
Margins (% of avg. Assets)
1.87%
1.84%
1.19%
1.71%
1.85%
1.85%
1.87%
1.91%
34%
35%
35%
33%
26%
23%
23%
23%
Non IR/Av g. Non-IR/Av g Assets
0 98% 0.98%
0 98% 0.98%
0 64% 0.64%
0 84% 0.84%
0 65% 0.65%
0 56% 0.56%
0 56% 0.56%
0 56% 0.56%
Revenue/Assets
2.86%
2.82%
1.83%
2.55%
2.49%
2.42%
2.42%
2.47%
C/Assets
1.35%
1.39%
0.87%
1.19%
1.15%
1.07%
1.03%
1.03%
Pre-Provision ROA
1.50%
1.43%
0.96%
1.36%
1.34%
1.35%
1.39%
1.44%
LLP/Loans
-0.48%
-0.39%
-0.17%
0.02%
-0.04%
-0.05%
-0.06%
-0.10%
Loan/Assets
54.6%
55.1%
56.7%
57.5%
58.4%
60.3%
58.4%
59.6%
Other Income/Assets
0.02%
0.09%
0.15%
0.18%
0.17%
0.25%
0.23%
0.26%
Operating ROA
1.24%
1.22%
0.86%
1.37%
1.32%
1.31%
1.36%
1.39%
Pre-Tax ROA
1.26%
1.30%
1.01%
1.55%
1.49%
1.56%
1.59%
1.65%
Tax Rate
-18.6%
-20.4%
-19.6%
-21.0%
-22.4%
-19.6%
-22.0%
-22.0%
ROA
1.03%
1.04%
0.82%
1.15%
1.15%
1.26%
1.24%
1.28%
4.7%
4.7%
5.0%
6.3%
7.7%
8.3%
8.2%
8.5%
22.0%
21.9%
16.4%
18.2%
15.0%
15.2%
15.1%
15.1%
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Non-IR contribution
Equity q y /Assets ROE
Source: Company data, J.P. Morgan estimates.
80
HLBK: Quarterly Income Statement Income Statement (M$MM)
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
1 602 1,602
1 600 1,600
1 625 1,625
1 637 1,637
1 665 1,665
1 646 1,646
1 647 1,647
1 618 1,618
1 788 1,788
Interest Ex pense
(866)
(865)
(871)
(893)
(901)
(882)
(860)
(838)
(957)
(986) (1,045) (1,079)
Net Interest Income
736
735
754
744
764
765
787
781
832
849
879
902
Fee income
149
150
144
149
163
175
114
143
138
151
166
187
Inv estment income
112
113
123
79
97
109
42
73
75
88
94
106
Islamic banking income
0
0
0
0
0
0
0
0
0
0
0
0
Other operating income
6
7
4
3
6
6
6
9
7
7
8
3
Non-Interest Income
267
270
271
231
266
290
162
225
221
246
267
296
1 003 1,003
1 004 1,004
1 025 1,025
975
1 029 1,029
1 055 1,055
948
1 006 1,006
1 053 1,053
1 095 1,095
1 147 1,147
1 198 1,198
Costs
(443)
(452)
(458)
(495)
(455)
(460)
(411)
(467)
(448)
(476)
(477)
(507)
PPOP
560
553
567
480
574
595
538
539
604
620
669
691
15
13
(41)
(28)
18
(21)
(25)
(24)
(16)
(16)
(17)
(22)
1
4
0
2
1 15
4
20
1
7
7
7
6
62
69
62
75
92
85
107
95
95
95
95
122
Pre-Tax
637
638
588
529
699
663
640
610
690
706
755
797
Tax
(160)
(130)
(134)
(113)
(155)
(143)
(139)
(74)
(152)
(155)
(166)
(175)
MI & EO
0
0
0
0
0
0
0
0
0
0
0
0
Disposals/ Ex ceptionals
0
0
0
0
0
0
0
0
0
0
0
0
478
508
454
416
544
520
500
537
538
550
589
622
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Interest Income
T t l Revenues Total R
Loan loss prov isions I Impairment i LLoss Associate
Reported profits
Source: Company data, J.P. Morgan estimates.
81
4Q14 1Q15E 2Q15E 3Q15E 4Q15E 1 835 1,835
1 924 1,924
1 981 1,981
HLBK: Quarterly DuPont Analysis ROE breakdown
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
NIM (% of avg avg. IEA)
1 95% 1.95%
1 97% 1.97%
2 01% 2.01%
1 93% 1.93%
1 95% 1.95%
1 94% 1.94%
1 98% 1.98%
1 93% 1.93%
1 93% 1.93%
1 96% 1.96%
1 99% 1.99%
1 99% 1.99%
IEA/Assets
96.1%
96.2%
95.9%
95.8%
96.0%
96.0%
96.1%
96.2%
96.1%
96.0%
96.0%
96.1%
Margins (% of avg. Asset 1.88%
1.90%
1.93%
1.85%
1.87%
1.87%
1.90%
1.86%
1.85%
1.88%
1.91%
1.91%
27%
27%
26%
24%
26%
28%
17%
22%
21%
22%
23%
25%
Non-IR/Av gg. Assets
0 68% 0.68%
0 70% 0.70%
0 69% 0.69%
0 57% 0.57%
0 65% 0.65%
0 71% 0.71%
0 39% 0.39%
0 53% 0.53%
0 49% 0.49%
0 54% 0.54%
0 58% 0.58%
0 63% 0.63%
Revenue/Assets
2.56%
2.59%
2.63%
2.43%
2.53%
2.57%
2.29%
2.39%
2.35%
2.42%
2.48%
2.54%
Cost/Income
44.2%
45.0%
44.7%
50.7%
44.2%
43.6%
43.3%
46.4%
42.6%
43.4%
41.6%
42.3%
C/Assets
1.13%
1.17%
1.17%
1.23%
1.12%
1.12%
0.99%
1.11%
1.00%
1.05%
1.03%
1.08%
Pre-Provision Pre Provision ROA
1 43% 1.43%
1 43% 1.43%
1 45% 1.45%
1 20% 1.20%
1 41% 1.41%
1 45% 1.45%
1 30% 1.30%
1 28% 1.28%
1 35% 1.35%
1 37% 1.37%
1 45% 1.45%
1 46% 1.46%
LLP/Loans
0.06%
0.06% -0.18% -0.12%
0.07% -0.08% -0.10% -0.09% -0.06% -0.06% -0.06% -0.08%
Loan/Assets
58.1%
59.6%
60.1%
59.6%
60.0%
60.7%
61.0%
61.2%
58.5%
59.1%
59.1%
59.0%
Other Income/Assets
0.16%
0.19%
0.16%
0.19%
0.26%
0.22%
0.31%
0.23%
0.23%
0.23%
0.22%
0.27%
Operating ROA
1.63%
1.65%
1.51%
1.32%
1.72%
1.62%
1.54%
1.45%
1.54%
1.56%
1.64%
1.69%
Pre-Tax ROA
1.63%
1.65%
1.51%
1.32%
1.72%
1.62%
1.54%
1.45%
1.54%
1.56%
1.64%
1.69%
Tax Rate
-25.1% -20.4% -22.7% -21.3% -22.1% -21.6% -21.8% -12.0% -22.0% -22.0% -22.0% -22.0%
ROA
1.22%
1.31%
1.16%
1.04%
1.34%
1.27%
1.21%
1.28%
1.20%
1.22%
1.28%
1.32%
RoRWA
1.98%
2.12%
1.88%
1.68%
2.12%
1.98%
1.87%
1.99%
1.94%
1.96%
2.06%
2.13%
7.6%
7.9%
8.0%
8.0%
8.2%
8.3%
8.4%
8.5%
8.2%
8.3%
8.4%
8.4%
16.0%
16.5%
14.5%
13.0%
16.3%
15.2%
14.4%
15.1%
14.6%
14.6%
15.2%
15.6%
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Non-IR contribution
Equity /Assets ROE
Source: Company data, J.P. Morgan estimates.
82
4Q14 1Q15E 2Q15E 3Q15E 4Q15E
ASEA AN Bank ks LIQUIDITY POSES GROWTH CHALLENGES
Indonesia Banks
83
Indonesia - Investment Summary Indo banks have defied the ‘impossible
ttrinity ty o of banking’ ba g in tthe e last ast five e yea years s
Indonesia Banks Valuation Company
Rating
Price
First sign of easing liquidity in August after
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
seasonally low gr in July (6.3% M2 growth in July) Three factors will shape the bank’s ability to
protect RoE – CASA, LDR and coverage
Credit costs will start normalizing due to
higher interest rates, slower growth and weaker IDR Loan growth guidance has moved to mid-
teen levels due to high LDR and slow deposit growth BCA is our top pick (OW) as we believe it
is the best-in-class risk manager, and we stay t OW on BRI as we believe b li BRI’ BRI’s NIM are relatively placed over the medium term.
PB (x)
Div yield (%)
RoE (%)
(LC)
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
BBRI
OW
11,100
12.1
10.5
2.88
2.42
2.5
2.8
26.0
25.0
BBNI
UW
5,450
10.6
10.2
1.87
1.66
2.8
2.9
18.7
17.2
BBCA
OW
11 850 11,850
16 2 16.2
13 6 13.6
3 77 3.77
3 12 3.12
15 1.5
18 1.8
25 6 25.6
25 1 25.1
BMRI
N
10,525
12.0
10.3
2.41
2.06
2.1
2.4
21.6
21.5
BDMN
UW
3,805
10.1
9.5
1.08
1.01
3.0
3.2
11.1
11.0
12.2
10.8
2.40
2.05
2.4
2.6
20.6
20.0
Average
Pricing power to shift away from banks to
g depositors. p The system y has one of the large most concentrated deposit holdings with just 0.3% of depositors holding 61% of system deposits.
PE (x)
Source: Bloomberg and JJ.P.Morgan P Morgan estimates estimates. Price as of 28th Aug 2014. 2014
Substantial deceleration in M2 23.00% 21.00% 19.00% 17.00% 15.00% 13.00% 11.00% 9.00% 7.00% 5.00% Jul-05 Source: CEIC
84
17.94%
6.26% Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Key catalysts CASA to decline 60.0% 58.0%
14.0
Spread widened in past few months and hence CASA reduced
When spread between TD rate and savings rate are high, CASA has dropped significantly
12.0
56.0% 10.0
54.0% 52.0%
8.0
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
50.0% 6.0
48 0% 48.0% 46.0%
4.0
44.0% 2.0 42.0% 40.0% Mar-03
Dec-03
Sep-04
Jun-05
Mar-06
Dec-06
Sep-07
CASA ratio (LHS)
Jun-08
Mar-09
Dec-09
Spread
Sep-10
Savings rate
Jun-11
Mar-12
Dec-12
Sep-13
Jun-14
TD rate
Sources: CIEC
Inverse correlation of 86% between FX reserves and NPL 140 120 100 80 60 40 20 -
Sources: CEIC
FX Reserve in USD bn (LHS)
NPL System (RHS-Inverted)
BOP has printed surplus in last few rounds 0% 1% 2% 3% 4% 5% 6% 7% 8% 9%
15000
Capital and financial
Current account
BOP
10000 5000 0 -5000 -10000 Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
Mar-13
Sources: Company reports and J.P. Morgan estimates. Credit cost are Gross loans weighted.
85
Mar-14
Key catalysts Asset – Liability spreads
NIMs to decline due to thinning liability spreads 8.00% 7 00% 7.00% 6.00% 5.00% 4.00%
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
3.00% 2.00% 1.00% 0.00% 2008
2009
2010
2011
Sector NIM
2012
2013
Asset Spread
2014E
2015E
2016E
Liability Spread
Sources: Company reports and J.P. Morgan estimates
Sources: Company reports and J.P. Morgan estimates. As on Dec-2013
Inverse correlation of 85% between FX reserves and NPL
Credit costs will normalize 250
140 120 100 80 60 40 20 -
FX Reserve in USD bn (LHS)
NPL System (RHS-Inverted)
0% 1% 2% 3% 4% 5% 6% 7% 8% 9%
228
230 210 175
190 170
151
150 130
122
124
130
2011
2012
2013
110 90 70 2010
Sources: CEIC
189
Sources: Company reports and J.P. Morgan estimates.
86
2014E
2015E
2016E
Economic Indicators Foreign Exchange Reserves
Real GDP 7.0% 6.5%
120
6.0%
100
5.3%
5.5%
80
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
5.0% 4.5%
60
4.9%
40
4.0%
20 2005
Sources: Bloomberg and J.P. Morgan estimates
9 0% 9.0%
12171
8.0% 11900
6.0%
5800
5.0%
1800
2010
2011
2012
2013
8.1% 7.0% 5.7% 4.6%
4.0%
3.8%
3.7%
2011
2012
3.0% 2010
Sources: Bloomberg and JP Morgan estimates
2009
7.0%
7800
3800
2008
Inflation expected to subside
11800 9800
2007
Sources: Bloomberg
USD-IDR trend 13800
2006
Sources: Bloomberg and JP Morgan estimates
87
2013
2014E
2015E
ASEA AN Bank ks LIQUIDITY POSES GROWTH CHALLENGES
Capital Framework
Source: BI
88
Liquidity Framework Slow deposit growth has limited loan growth
Indonesia System LDR
and will crimp margins
105% 95% 85% 75% 65% 55% 45% 35%
NIM improved in the past 5 years due to period
of re-leveraging
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
As liquidity tightened, TD costs increased
across Indo banks in the past few months which led to higher loan pricing and potential decline in CASA ratio
95.0% 90.4%
LDR
LDR ex big 4
Our main worry lies on the tradeoff between Source: CEIC
liquidity drain and sustaining NIM which in our view, may possibly lead to higher NPL Indonesia CASA ratio
Indonesia Excess Deposits are now used up
58% 56%
53%
54%
52%
52%
53% 52%
53%
54%
55%
45.0%
56%
40.0% 35.0%
52% 50%
47%
48% 46% 44%
30.0%
48%
25 0% 25.0% 20.0%
43%
15.0%
42%
10.0%
40% 2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Source: CEIC
Source: CEIC
89
Loan / GDP
Excess deposits
Bank Rakyat Indonesia (BBRI) BBRI (OW): Expect bank to gain deposit market share due to broader reach (19,073 ATMs)
and deposit gathering strength in Micro segment (28.8% of total deposits as at the end of 2Q) Higher CoF and credit costs will necessitate tighter opex control While all the three cost lines (funding, operating and credit) are at risk of deterioration from
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
here, better non-II and balance sheet growth will likely provide an offset Maintains industry-high loan growth guidance of 18-20% We use a two-stage DDM to set our Jun-15 PT of Rp12,000. Key downside risks to our view
include higher-than-expected credit costs, inability to pass on funding cost increases and a value l eroding di acquisition i iti
Market share of deposits – seems underappreciated 15.0% 14.0% 13.0% 12.0% 11 0% 11.0% 10.0% 9.0%
Micro deposit share has started stabilizing 100% 80% 60%
Source: CEIC
70.4%
72.6%
71.1%
71.0%
71.0%
70.3%
71.2%
32.0%
29.6%
27.4%
28.9%
29.0%
29.0%
29.7%
28.8%
2008
2009
2010 2011 2012 2013 % of micro deposits % of non-micro deposits
1Q14
2Q14
40% 20%
8.0% 7.0% May-03 May-04 May-05 May-06 May-07 May-08 May-09 May-10 May-11 May-12 May-13 May-14
68.0%
0%
Source: Company data, J.P. Morgan estimates.
90
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
CASA market share has been increasing… 17.0% 16.0% 1 0% 15.0% 14.0% 13.0% 12.0% 11.0% 10.0% 9.0%
…because of expansion in ATM network 24,000 20,000 16,000 12,000 8,000 4,000 2007
2008
2009 BCA
Source: CEIC
…resulting in good asset and liability spreads
2010 BMRI
2011 2012 BBRI
Source: Company presentations
…and relatively flat NIM going forward
Source: J.P.Morgan estimates
Source: CEIC
91
2013 BBNI
2Q14
BBRI: Annual Income Statement Income Statement
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Rp in Billion
2009
2010
2013
2014E
Interest Income
35,334
44,615
48,151
59,508
72,486
86,588
Interest Ex pense
(12,286)
(11,727)
(13,733) (13,123) (15,356)
(20,763)
(25,031) (28,655)
Net Interest Incom e
23,048
32,888
34,418
36,475
44,153
51,723
61,557
71,407
Non Interest Incom e Non-Interest
3 270 3,270
5 545 5,545
5 788 5,788
8 425 8,425
8 337 8,337
8 947 8,947
10 202 10,202
11 549 11,549
Net Fee income
2,118
2,829
3,421
3,993
4,939
5,532
6,362
7,316
Trading income
983
929
196
516
543
417
543
605
Other operating p g income
169
1,787
2,171
3,916
2,855
2,998
3,297
3,627
26,318
38,433
40,206
44,901
52,490
60,671
71,759
82,956
(17,057) (19,545) (22,421)
(27,138)
(31,209) (35,891)
Total Revenues Costs
(12,337) (16,164)
2011
2012 49,598
2015E
2016E 100,062
PPOP
13,981
22,269
23,149
25,356
30,069
33,532
40,550
Loan loss prov isions
(5,420)
(7,866)
(5,526)
(2,669)
(3,948)
(6,263)
(9,149) (11,363)
9,891
14,908
18,757
23,860
27,910
29,237
33,566
37,976
(2,583)
(3,436)
(3,668)
(5,172)
(6,556)
(6,578)
(7,552)
(8,545)
-
-
(5)
(6)
(10)
(11)
(12)
(14)
7,308
11,472
15,084
18,681
21,344
22,648
26,001
29,417
Pre-Tax Tax MI & EO Net Profit
Source: Company data, J.P. Morgan estimates.
92
47,065
BBRI: Annual DuPont Analysis
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
ROE breakdown
2009
2010
2011
2012
2013
2014E
2015E
2016E
NIM (% of avg. IEA)
9.19%
10.28%
9.15%
8.15%
8.42%
8.66%
8.70%
8.62%
IEA/Assets
89.1%
88.7%
86.1%
87.6%
89.1%
88.7%
90.2%
90.3%
Margins (% of avg. A
8.19%
9.12%
7.87%
7.14%
7.50%
7.68%
7.85%
7.79%
Non-IR contribution
12.43%
14.43%
14.40%
18.76%
15.88%
14.75%
14.22%
13.92%
Non-IR/Av g g. Assets
1 16% 1.16%
1 54% 1.54%
1 32% 1.32%
1 65% 1.65%
1 42% 1.42%
1 33% 1.33%
1 30% 1.30%
1 26% 1.26%
Revenue/Assets
9.35%
10.66%
9.20%
8.79%
8.92%
9.01%
9.15%
9.05%
Cost/Income
46.9%
42.1%
42.4%
43.5%
42.7%
44.7%
43.5%
43.3%
C/Assets
4.38%
4.48%
3.90%
3.83%
3.81%
4.03%
3.98%
3.91%
P P Pre-Provision i i ROA
4 97% 4.97%
6 18% 6.18%
5 30% 5.30%
4 97% 4.97%
5 11% 5.11%
4 98% 4.98%
5 17% 5.17%
5 13% 5.13%
LLP/Loans
-2.94%
-3.42%
-2.02%
-0.81%
-0.97%
-1.29%
-1.62%
-1.72%
Loan/Assets
65.56%
63.84%
62.55%
64.25%
68.78%
72.06%
72.15%
72.00%
Other Income/Assets
0.47%
0.14%
0.26%
0.23%
0.30%
0.29%
0.28%
0.25%
Operating ROA
3.04%
4.13%
4.29%
4.67%
4.74%
4.34%
4.28%
4.14%
Pre-Tax ROA
3.51%
4.13%
4.29%
4.67%
4.74%
4.34%
4.28%
4.14%
-26.1%
-23.0%
-19.6%
-21.7%
-23.5%
-22.5%
-22.5%
-22.5%
ROA
2.60%
3.18%
3.45%
3.66%
3.63%
3.36%
3.31%
3.21%
RoRWA
4.62%
5.58%
5.76%
5.97%
5.60%
4.91%
4.77%
4.58%
Equity /Assets
8.81%
8.86%
9.89%
11.22%
12.23%
12.94%
13.27%
13.47%
ROE
29.5%
35.9%
34.9%
32.6%
29.7%
26.0%
25.0%
23.8%
Tax Rate
Source: Company data, J.P. Morgan estimates.
93
BBRI: Quarterly Income Statement Income Statement
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Rp in Billion Interest Income Interest Ex pense Net Interest Income Non-Interest Income Net Fee income Trading income Other operating income Total Revenues Costs PPOP Loan loss prov isions Other prov isions Gains on disposals p Other income Pre-Tax Tax Profit before minorities MI andd EO Core Attributable profit
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
12,031 (3,649) 8,382 1,684 847 225 611 10,065 (4 390) (4,390) 5,676 (528) -
12,420 (3,164) 9,257 1,623 990 21 611 10,879 (4 598) (4,598) 6,281 (1,082) -
12,208 (3,121) 9,086 2,124 1,000 150 974 11,210 (5 210) (5,210) 6,000 (618) -
12,939 (3,189) 9,751 2,995 1,155 120 1,720 12,746 (5 347) (5,347) 7,399 (441) -
13,352 (3,424) 9,928 1,780 1,048 181 551 11,708 (5 190) (5,190) 6,518 (662) -
13,671 (3,571) 10,100 1,920 1,206 20 693 12,019 (5 332) (5,332) 6,687 (814) -
15,059 (3,890) 11,169 1,803 1,220 22 560 12,972 (5 989) (5,989) 6,983 (840) -
17,426 (4,470) 12,956 2,835 1,465 320 1,051 15,791 (5 910) (5,910) 9,881 (1,632) -
17,111 (4,698) 12,413 1,609 1,249 (204) 563 14,022 (6 115) (6,115) 7,906 (1,100) -
17,946 (5,290) 12,656 2,282 1,442 336 504 14,939 (5 984) (5,984) 8,955 (2,033) -
302 5,450 (1,215) 4,235 (2) 4,233
113 5,313 (843) 4,470 (2) 4,467
321 5,703 (1,235) 4,469 (0) 4,468
436 7,394 (1,879) 5,514 (2) 5,512
360 6,216 (1,129) 5,087 (2) 5,085
216 6,089 (1,018) 5,071 (4) 5,067
520 6,663 (1,366) 5,297 (5) 5,292
693 8,942 (3,042) 5,900 0 5,900
605 7,412 (1,474) 5,938 (3) 5,935
505 7,427 (1,615) 5,812 (3) 5,809
Source: Company data, J.P. Morgan estimates.
94
BBRI: Quarterly DuPont Analysis
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
ROE breakdown 1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
NIM ((% of avg. g IEA))
8.37%
8.49%
8.43%
8.39%
8.19%
7.97%
8.59%
9.45%
9.06%
8.80%
IEA/Assets
88.1%
95.5%
90.1%
89.9%
89.7%
93.4%
91.0%
90.3%
88.3%
91.4%
Margins (% of avg. Assets
7.37%
8.11%
7.60%
7.54%
7.35%
7.44%
7.81%
8.54%
8.00%
8.04%
Non-IR contribution
16.7%
14.9%
18.9%
23.5%
15.2%
16.0%
13.9%
18.0%
11.5%
15.3%
Non-IR/Av g. Assets
1.48%
1.42%
1.78%
2.32%
1.32%
1.41%
1.26%
1.87%
1.04%
1.45%
Revenue/Assets
8.86%
9.53%
9.37%
9.86%
8.67%
8.85%
9.07%
10.41%
9.03%
9.49%
Cost/Income
43.6%
42.3%
46.5%
42.0%
44.3%
44.4%
46.2%
37.4%
43.6%
40.1%
C/Assets
3.86%
4.03%
4.36%
4.14%
3.84%
3.93%
4.19%
3.89%
3.94%
3.80%
Pre-Provision ROA
4.99%
5.50%
5.02%
5.72%
4.82%
4.93%
4.88%
6.51%
5.09%
5.69%
-0.72%
-1.42%
-0.76%
-0.51%
-0.72%
-0.83%
-0.80%
-1.49%
-0.98%
-1.75%
64.7%
66.8%
67.6%
66.9%
68.2%
72.1%
73.2%
72.3%
72.3%
73.6%
Other Income/Assets
0.3%
0.1%
0.3%
0.3%
0.3%
0.2%
0.4%
0.5%
0.4%
0.3%
Operating ROA
4.5%
4.6%
4.5%
5.4%
4.3%
4.3%
4.3%
5.4%
4.4%
4.4%
4.80%
4.65%
4.77%
5.72%
4.60%
4.49%
4.66%
5.89%
4.77%
4.72%
-22.3%
-15.9%
-21.6%
-25.4%
-18.2%
-16.7%
-20.5%
-34.0%
-19.9%
-21.7%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Core ROA
3.72%
3.91%
3.74%
4.26%
3.76%
3.73%
3.70%
3.89%
3.82%
3.69%
ROA
3.72%
3.91%
3.74%
4.26%
3.76%
3.73%
3.70%
3.89%
3.82%
3.69%
Core RoRWA
5.73%
5.72%
6.06%
7.29%
5.85%
5.47%
5.39%
5.70%
5.53%
5.23%
RoRWA
5.73%
5.72%
6.06%
7.29%
5.85%
5.47%
5.39%
5.70%
5.53%
5.23%
Equity /Assets
11.5%
12.0%
12.0%
12.0%
12.0%
12.3%
12.4%
12.6%
12.7%
13.0%
Core ROE
32.5%
32.6%
31.1%
35.4%
31.4%
30.5%
29.8%
30.9%
30.0%
28.4%
ROE
32.5%
32.6%
31.1%
35.4%
31.4%
30.5%
29.8%
30.9%
30.0%
28.4%
LLP/Loans Loan/Assets
Pre-Tax ROA Tax Rate Minorities & Outside Int.
Source: Company data, J.P. Morgan estimates.
95
Bank Central Asia (BCA) BCA (OW): Best-in-class Best in class risk manager manager, our top pick in the sector Combination of high CASA (77%), low LDR (76%) and high coverage (365%) positions it well to
protect RoE over next few quarters Lack L k off deterioration d t i ti iin 30 30-day d NPL fformation ti and d hi high h excess lloan reserves reinforces i f th the
bank’s risk management credentials
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Even by the bank’s conservative self-imposed LDR ceiling of 78-80%, there is room to manage
g costs NIM and funding Our Jun-15 PT of Rp13,000 is based on a two-stage DDM. We use a fair P/BV multiple of 3.62x,
with a normalized RoE of 25.1%. Key downside risks to our view include higher-than-expected credit costs, inability to pass on funding cost increases and a meaningful increase in cost/assets, which hi h att 3 3.12% 12% llastt year were th the llowestt among IIndonesian d i b banks k under d our coverage Lowest NPL ratio and credit costs…
…High excess loan loss reserves
140 132
135 130 125 120 115 110 1Q12 Source: Company data, J.P. Morgan estimates.
2Q12
3Q12
4Q12
1Q13
2Q13
Source: Company data, J.P. Morgan estimates.
96
3Q13
4Q13
1Q14
2Q14
BCA: Annual Income Statement Income Statement
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Rp (in bn)
2009
2010
2011
2012
2013
2014E
2015E
2016E
Interest Income
22,933
20,661
25,796
28,893
34,291
43,597
52,573
59,250
Interest Ex pense
(8,033)
(7,724)
(7,730)
(7,647)
(7,852)
(11,184)
(14,171)
(16,068)
Net Interest Incom e
14,900
12,937
18,066
21,245
26,439
32,414
38,402
43,182
Non-Interest Non Interest Incom e
4,446
7,345
5,984
6,370
7,287
8,146
9,288
10,600
Net Fee income
2,781
3,999
4,556
5,455
6,310
7,067
8,127
9,346
Trading income
309
2,037
1,147
597
506
538
538
538
1,356
1,309
281
318
471
542
623
716
Total Revenues
19,346
20,282
24,050
27,616
33,726
40,560
47,690
53,782
Costs
(8,459)
(10,216)
(10,914)
(12,861)
(14,631)
(16,826)
(19,075)
(21,730)
PPOP
10,887
10,066
13,136
14,754
19,094
23,734
28,615
32,052
Loan loss p prov isions
((2,232))
334
366
((384))
((1,864))
((1,775))
((2,446))
((3,231))
(206)
(115)
(152)
(152)
(152)
(152)
Other operating income
Other prov isions
-
-
8,945
10,653
13,619
14,686
17,816
22,581
26,830
29,522
(2,138)
(2,174)
(2,801)
(2,968)
(3,559)
(4,511)
(5,360)
(5,898)
6 807 6,807
8 479 8,479
10 819 10,819
11 722 11,722
14 254 14,254
18 066 18,066
21 466 21,466
23 620 23,620
Pre-Tax Tax Net Profits Source: Company data, J.P. Morgan estimates.
97
BCA: Annual DuPont Analysis ROE breakdown 2009
2010
2011
2012
2013
2014E
2015E
2016E
NIM ((% of avg. g IEA))
6.40%
5.30%
5.70%
5.60%
6.20%
6.66%
6.95%
6.86%
IEA/Assets
88.2%
80.5%
89.8%
92.1%
90.8%
92.2%
92.3%
92.5%
Margins (% of av g. Ass
5.64%
4.26%
5.12%
5.15%
5.63%
6.14%
6.42%
6.35%
22.98%
36.21%
24.88%
23.07%
21.61%
20.08%
19.48%
19.71%
Non-IR/Av g. Assets
1.68%
2.42%
1.69%
1.54%
1.55%
1.54%
1.55%
1.56%
Rev enue/Assets
7.33%
6.68%
6.81%
6.70%
7.18%
7.68%
7.97%
7.91%
Cost/Income
43.7%
50.4%
45.4%
46.6%
43.4%
41.5%
40.0%
40.4%
C/Assets
3.20%
3.37%
3.09%
3.12%
3.12%
3.19%
3.19%
3.20%
Pre-Provision ROA
4.12%
3.32%
3.72%
3.58%
4.07%
4.49%
4.78%
4.71%
-1.89%
0.24%
0.20%
-0.17%
-0.65%
-0.53%
-0.63%
-0.74%
44.83%
45.94%
50.66%
55.85%
60.84%
63.70%
64.42%
64.51%
0.11%
0.08%
0.03%
0.08%
0.12%
0.12%
0.11%
0.10%
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Non-IR contribution
LLP/Loans Loan/Assets Other Income/Assets Operating ROA
3.28%
3.51%
3.86%
3.56%
3.79%
4.27%
4.48%
4.34%
Pre-Tax ROA
3.39%
3.51%
3.86%
3.56%
3.79%
4.27%
4.48%
4.34%
-23.9%
-20.4%
-20.6%
-20.2%
-20.0%
-20.0%
-20.0%
-20.0%
Minorities & Outside Int.
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
ROA
2.58%
2.79%
3.06%
2.84%
3.03%
3.42%
3.59%
3.47%
RoRWA
4.76%
4.69%
4.42%
3.94%
4.19%
4.60%
4.75%
4.57%
Equity /Assets
9.69%
10.21%
10.78%
11.37%
12.32%
13.37%
14.28%
15.05%
ROE
26.6%
27.4%
28.4%
25.0%
24.6%
25.6%
25.1%
23.1%
Tax Rate
S Source: Company C d data, t JJ.P. P M Morgan estimates. ti t
98
BCA: Quarterly Income Statement Income Statement
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Rp (in bn)
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
Interest Income
6,854
7,042
7,319
7,679
7,724
8,015
8,898
9,653
10,269
10,659
Interest Ex pense
(2,053)
(1,954)
(1,893)
(1,748)
(1,696)
(1,757)
(2,079)
(2,319)
(2,640)
(2,861)
Net Interest Income
4,801
5,088
5,426
5,931
6,028
6,258
6,818
7,334
7,629
7,798
Non Interest Income Non-Interest
1 428 1,428
1 506 1,506
1 558 1,558
1 878 1,878
1 631 1,631
1 796 1,796
1 948 1,948
1 912 1,912
2 120 2,120
2 096 2,096
Net Fee income
1,233
1,301
1,378
1,543
1,423
1,604
1,588
1,695
1,657
1,832
Trading income
121
122
107
246
139
97
240
30
284
43
73
83
73
89
69
95
121
187
179
221
Total Revenues
6,228
6,595
6,984
7,809
7,659
8,054
8,767
9,246
9,749
9,894
Costs
(3,399)
(3,086)
(3,037)
(3,339)
(3,728)
(3,510)
(3,441)
(3,953)
(4,693)
(4,388)
PPOP
2,829
3,508
3,946
4,470
3,931
4,545
5,326
5,293
5,056
5,506
Loan loss prov isions
13
85
(307)
(176)
(380)
(289)
(606)
(590)
(244)
(324)
Other prov isions
(23)
(19)
(34)
(38)
(12)
(74)
(95)
29
(98)
(120)
Other income
76
203
124
28
84
117
396
140
(85)
226
2 895 2,895
3 777 3,777
3 729 3,729
4 284 4,284
3 624 3,624
4 300 4,300
5 021 5,021
4 871 4,871
4 629 4,629
5 289 5,289
(590)
(785)
(754)
(839)
(729)
(870)
(983)
(978)
(958)
(1,098)
2,304
2,995
2,977
3,446
2,892
3,429
4,039
3,894
3,665
4,187
Other operating p g income
Pre-Tax Tax Net Profits
Source: Company data, J.P. Morgan estimates.
99
BCA: Quarterly DuPont Analysis
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
ROE breakdown
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
NIM (% of avg. IEA)
5.24%
5.34%
5.42%
5.57%
5.90%
5.95%
6.04%
6.18%
6.45%
6.46%
IEA/Assets
93.7%
94.2%
95.9%
98.0%
91.8%
93.0%
95.5%
96.5%
94.8%
94.2%
Margins (% of av g. Ass
4.91%
5.03%
5.19%
5.45%
5.42%
5.53%
5.77%
5.97%
6.11%
6.09%
Non-IR contribution
22.92%
22.84%
22.31%
24.05%
21.29%
22.30%
22.22%
20.68%
21.75%
21.18%
Non-IR/Av g. Assets
1.46%
1.49%
1.49%
1.73%
1.47%
1.59%
1.65%
1.56%
1.70%
1.64%
Rev enue/Assets
6.37%
6.52%
6.69%
7.18%
6.88%
7.12%
7.42%
7.52%
7.81%
7.72%
Cost/Income
54.6%
46.8%
43.5%
42.8%
48.7%
43.6%
39.2%
42.8%
48.1%
44.3%
C/Assets
3.47%
3.05%
2.91%
3.07%
3.35%
3.10%
2.91%
3.22%
3.76%
3.42%
Pre-Provision ROA
2.89%
3.47%
3.78%
4.11%
3.53%
4.02%
4.51%
4.31%
4.05%
4.30%
LLP/Loans
0 02% 0.02%
0 16% 0.16%
-0 0.53% 53%
-0 0.28% 28%
-0 0.58% 58%
-0 0.42% 42%
-0 0.83% 83%
-0 0.77% 77%
-0 0.31% 31%
-0 0.40% 40%
52.75%
53.94%
55.68%
57.05%
58.82%
60.47%
61.55%
62.43%
63.34%
62.60%
Other Income/Assets
0.05%
0.18%
0.09%
-0.01%
0.07%
0.04%
0.25%
0.14%
-0.15%
0.08%
Operating ROA
2.91%
3.55%
3.48%
3.95%
3.19%
3.76%
4.00%
3.83%
3.86%
4.04%
Pre-Tax ROA
2.96%
3.73%
3.57%
3.94%
3.26%
3.80%
4.25%
3.96%
3.71%
4.13%
-20.4%
-20.8%
-20.2%
-19.6%
-20.1%
-20.2%
-19.6%
-20.1%
-20.7%
-20.8%
ROA
2.35%
2.96%
2.85%
3.17%
2.60%
3.03%
3.42%
3.17%
2.94%
3.27%
RoRWA
3.33%
4.27%
4.07%
4.50%
3.60%
4.12%
4.65%
4.32%
3.95%
4.35%
11.03%
11.09%
11.33%
11.61%
12.17%
12.60%
12.56%
12.71%
13.19%
13.47%
21 4% 21.4%
26 7% 26.7%
25 2% 25.2%
27 3% 27.3%
21 4% 21.4%
24 0% 24.0%
27 2% 27.2%
24 9% 24.9%
22 3% 22.3%
24 3% 24.3%
Loan/Assets
Tax Rate
Equity /Assets ROE
Source: Company data, J.P. Morgan estimates.
100
PT Bank Mandiri Tbk. (BMRI) BMRI (N): Market leading position, balance sheet size and corporate relationships to allow the
bank to manage the margin pressures Going forward, bank to shift focus on liquidity, asset quality and NIM, in that order. Growth
does not figure in the bank’s top three priorities Lost 226bp of deposit market share in last five years The full year guidance on loan growth (16%), margins (5.7%) and asset quality (2.1%) stays
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
sanguine, all predicated on hope of liquidity easing in 4Q Our Jun-15 PT of Rp9,500 is based on a 2-stage DDM. We use a fair P/BV multiple of 1.91x
with a normalized ROE of 20.1%. Key upside risks include lower-than-expected credit costs, faster-than-expected loan growth and lower cost of funds. Key downside risks include meaningful deterioration in asset quality and operating costs
Loss in deposit market share…
…due to declining time deposit market share
24%
33.0%
22%
28.0%
20% 18%
23.0%
16%
18.0%
14%
13.0%
12%
8.0%
10% May-03 May-04 May-05 May-06 May-07 May-08 May-09 May-10 May-11 May-12 May-13 May-14 Source: CEIC
Source: Company data, J.P. Morgan estimates.
101
BMRI: Annual Income Statement
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Income Statement
Rp in Billion
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
2016E
Interest Income
25,657
23,233
26,496
31,640
34,957
37,730
42,550
50,209
62,165
72,229
81,003
Interest Ex pense
(15,900)
(11,114)
(12,052)
(15,241)
(14,234)
(15,195) (14,129)
(16,399)
(22,571)
(26,706)
(27,934)
Net Interest Income
9,757
12,119
14,444
16,399
20,723
22,535
28,422
33,809
39,594
45,523
53,069
Non-Interest Income
3,323 ,
4,056 ,
5,494 ,
6,624 ,
8,695 ,
13,772 ,
14,400 ,
17,132 ,
18,296 ,
20,723 ,
23,492 ,
Net Fee income
588
667
840
959
5,237
6,558
9,540
11,332
12,352
14,205
16,335
Trading income
-
-
-
-
860
1,000
1,434
1,673
1,817
1,896
1,979
2,735
3,389
4,654
5,665
2,598
6,214
3,426
4,128
4,128
4,623
5,178
Total Revenues
13,080
16,175
19,938
23,023
29,418
36,307
42,822
50,942
57,890
66,246
76,560
Costs
(6,825)
(8,160)
(9,213)
(10,631)
(12,918)
(17,129) (19,830)
(22,553)
(25,729)
(29,501)
(33,838)
PPOP
6,255
8,015
10,725
12,392
16,500
19,178
22,991
28,389
32,161
36,745
42,722
Loan loss prov isions
(3,543)
(1,801)
(2,816)
(1,958)
(2,764)
(2,831)
(3,349)
(4,602)
(5,801)
(7,876)
(10,555)
Pre-Tax
2,832
6,334
8,069
10,824
13,972
16,513
20,504
24,062
26,714
29,251
32,576
(409)
(1,986)
(2,753)
(3,626)
(4,603)
(3,816)
(4,461)
(5,232)
(5,809)
(6,360)
(7,083)
1
1
2
(43)
(151)
(450)
(540)
(626)
(695)
(761)
(848)
2,424
4,349
5,318
7,155
9,218
12,247
15,504
18,204
20,210
22,129
24,645
Other operating income
Tax Minorities and Ex tra Ordinary Ite Core Attributable profit
Source: Company data, J.P. Morgan estimates.
102
BMRI: Annual DuPont Analysis
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
ROE breakdown 2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
2016E
NIM (% of avg. IEA)
3.75%
4.22%
4.39%
5.17%
5.40%
5.28%
5.50%
5.57%
5.82%
5.87%
6.02%
IEA/Assets
97.9%
97.8%
97.0%
84.3%
90.9%
85.3%
87.1%
88.6%
86.8%
86.8%
86.8%
Margins (% of avg. Assets)
3.68%
4.13%
4.26%
4.36%
4.91%
4.50%
4.79%
4.94%
5.05%
5.09%
5.22%
Non-IR contribution
25.4%
25.1%
27.6%
28.8%
29.6%
37.9%
33.6%
33.6%
31.6%
31.3%
30.7%
Non-IR/Av g. Assets
1.25%
1.38%
1.62%
1.76%
2.06%
2.75%
2.43%
2.50%
2.33%
2.32%
2.31%
Revenue/Assets
4.93%
5.51%
5.89%
6.11%
6.97%
7.25%
7.21%
7.44%
7.39%
7.41%
7.53%
Cost/Income
52.2%
50.4%
46.2%
46.2%
43.9%
47.2%
46.3%
44.3%
44.4%
44.5%
44.2%
C/Assets
2.57%
2.78%
2.72%
2.82%
3.06%
3.42%
3.34%
3.30%
3.28%
3.30%
3.33%
Pre-Provision ROA
2.36%
2.73%
3.17%
3.29%
3.91%
3.83%
3.87%
4.15%
4.10%
4.11%
4.20%
-3.16%
-1.41%
-1.80%
-1.05%
-1.25%
-1.01%
-0.95%
-1.07%
-1.15%
-1.36%
-1.58%
42.3%
43.7%
46.2%
49.3%
52.5%
56.0%
59.2%
62.9%
64.5%
64.7%
65.6%
Other Income/Assets
0.0%
0.0%
0.0%
0.1%
0.1%
0.0%
0.1%
0.0%
0.0%
0.0%
0.0%
Operating ROA
1.0%
2.12%
2.33%
2.77%
3.31%
3.30%
3.45%
3.52%
3.41%
3.27%
3.21%
LLP/Loans Loan/Assets
Pre-Tax ROA Tax Rate Minorities & Outside Int.
1.07%
2.16%
2.38%
2.87%
3.31%
3.30%
3.45%
3.52%
3.41%
3.27%
3.21%
-14.4%
-31.4%
-34.1%
-33.5%
-32.9%
-23.1%
-21.8%
-21.7%
-21.7%
-21.7%
-21.7%
0.0%
0.0%
0.0%
0.0%
0.0%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
C Core ROA
0 91% 0.91%
1 48% 1.48%
1 57% 1.57%
1 90% 1.90%
2 18% 2.18%
2 45% 2.45%
2 61% 2.61%
2 66% 2.66%
2 58% 2.58%
2 48% 2.48%
2 42% 2.42%
ROA
0.91%
1.48%
1.57%
1.90%
2.18%
2.45%
2.61%
2.66%
2.58%
2.48%
2.42%
Core RoRWA
2.13%
3.53%
3.47%
3.67%
3.59%
3.55%
3.69%
3.67%
3.47%
3.35%
3.28%
RoRWA
2.13%
3.53%
3.47%
3.67%
3.59%
3.55%
3.69%
3.67%
3.47%
3.35%
3.28%
Equity /Assets
9.3%
9.5%
8.8%
8.7%
9.1%
10.3%
11.5%
11.8%
12.1%
12.3%
12.4%
C Core ROE
9 8% 9.8%
15 6% 15.6%
17 8% 17.8%
21 8% 21.8%
24 1% 24.1%
23 7% 23.7%
22 7% 22.7%
22 5% 22.5%
21 4% 21.4%
20 2% 20.2%
19 5% 19.5%
ROE
9.8%
15.6%
17.8%
21.8%
24.1%
23.7%
22.7%
22.5%
21.4%
20.2%
19.5%
Source: Company data, J.P. Morgan estimates.
103
BMRI: Quarterly Income Statement Income Statement
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Rp in Billion Interest Income Interest Ex pense Net Interest Income Non-Interest Non Interest Income Net Fee income Trading income Other operating income Total Revenues Costs PPOP Loan loss prov isions Other prov isions Other income Pre-Tax Tax Profit before minorities MI and EO Core Attributable profit
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
9,939 (3,734) 6,204 3,270 2,181 344 745 9,474 , (4,247) 5,227 (911) 174 4,490 (954) 3,537 (134) 3,403
10,284 (3,397) 6,886 3,564 2,416 256 892 10,450 , (4,715) 5,735 (840) 26 4,921 (1,053) 3,868 (124) 3,744
10,929 (3,414) 7,515 3,398 2,329 344 725 10,914 , (4,651) 6,263 (1,105) 35 5,193 (1,078) 4,115 (142) 3,973
11,399 (3,583) 7,816 4,168 2,614 490 1,065 11,984 , (6,218) 5,766 (510) 644 5,900 (1,376) 4,524 (140) 4,384
11,402 (3,716) 7,686 3,883 2,480 272 1,132 11,569 , (4,877) 6,692 (951) (133) 42 5,650 (1,184) 4,466 (163) 4,303
11,713 (3,798) 7,915 3,965 2,794 283 888 11,880 , (5,318) 6,562 (1,356) (47) 69 5,227 (1,084) 4,143 (152) 3,991
12,683 (4,118) 8,566 4,503 2,838 774 891 13,068 , (5,765) 7,303 (1,313) (184) 65 5,872 (1,210) 4,662 (152) 4,509
14,411 (4,768) 9,643 4,781 3,219 344 1,217 14,424 , (6,592) 7,832 (981) 129 334 7,313 (1,754) 5,559 (159) 5,400
14,313 (5,064) 9,249 4,112 2,719 562 831 13,361 , (5,669) 7,693 (952) (277) (4) 6,459 (1,336) 5,123 (198) 4,925
14,978 (5,603) 9,375 4,420 2,904 421 1,095 13,795 , (6,136) 7,659 (1,593) 23 10 6,098 (1,256) 4,843 (182) 4,661
Source: Company data, J.P. Morgan estimates.
104
BMRI: Quarterly DuPont Analysis
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
ROE breakdown 1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
NIM (% of avg. g IEA))
5.22% %
5.54% %
5.89% %
5.67% %
5.50% %
5.34% %
5.72% %
6.16% %
5.94% %
5.84% %
IEA/Assets
86.2%
88.5%
88.0%
90.1%
87.5%
90.3%
87.2%
87.3%
85.2%
86.0%
Margins (% of avg. Assets
4.50%
4.90%
5.18%
5.11%
4.82%
4.82%
4.99%
5.38%
5.06%
5.02%
Non-IR contribution
34.5%
34.1%
31.1%
34.8%
33.6%
33.4%
34.5%
33.1%
30.8%
32.0%
Non-IR/Av g. Assets
2.37%
2.54%
2.34%
2.72%
2.43%
2.42%
2.63%
2.67%
2.25%
2.37%
Revenue/Assets
6 87% 6.87%
7 44% 7.44%
7 53% 7.53%
7 83% 7.83%
7 25% 7.25%
7 24% 7.24%
7 62% 7.62%
8 05% 8.05%
7 31% 7.31%
7 38% 7.38%
Cost/Income
44.8%
45.1%
42.6%
51.9%
42.2%
44.8%
44.1%
45.7%
42.4%
44.5%
C/Assets
3.08%
3.36%
3.21%
4.06%
3.06%
3.24%
3.36%
3.68%
3.10%
3.28%
Pre-Provision ROA
3.79%
4.08%
4.32%
3.77%
4.19%
4.00%
4.26%
4.37%
4.21%
4.10%
-1.14%
-1.00%
-1.24%
-0.54%
-0.98%
-1.32%
-1.20%
-0.85%
-0.81%
-1.33%
58.1%
60.0%
61.4%
61.6%
61.1%
62.4%
64.0%
64.3%
64.4%
63.9%
Other Income/Assets
0.1%
0.0%
0.0%
0.4%
-0.1%
0.0%
-0.1%
0.3%
-0.2%
0.0%
Operating ROA
3.1%
3.5%
3.6%
3.4%
3.6%
3.2%
3.5%
3.8%
3.7%
3.2%
3.25%
3.50%
3.58%
3.86%
3.54%
3.19%
3.42%
4.08%
3.53%
3.26%
-21.2%
-21.4%
-20.8%
-23.3%
-21.0%
-20.7%
-20.6%
-24.0%
-20.7%
-20.6%
Minorities & Outside Int.
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
Core ROA
2.47%
2.67%
2.74%
2.87%
2.70%
2.43%
2.63%
3.01%
2.69%
2.50%
ROA
2.47%
2.67%
2.74%
2.87%
2.70%
2.43%
2.63%
3.01%
2.69%
2.50%
Core RoRWA
3.47%
3.76%
3.83%
4.04%
3.77%
3.32%
3.55%
4.04%
3.59%
3.35%
RoRWA
3 47% 3.47%
3 76% 3.76%
3 83% 3.83%
4 04% 4.04%
3 77% 3.77%
3 32% 3.32%
3 55% 3.55%
4 04% 4.04%
3 59% 3.59%
3 35% 3.35%
Equity /Assets
11.5%
11.7%
11.8%
11.8%
12.0%
11.9%
11.6%
11.8%
12.0%
12.0%
Core ROE
21.4%
22.8%
23.3%
24.2%
22.4%
20.4%
22.6%
25.5%
22.5%
20.8%
ROE
21.4%
22.8%
23.3%
24.2%
22.4%
20.4%
22.6%
25.5%
22.5%
20.8%
LLP/Loans Loan/Assets
Pre-Tax ROA Tax Rate
Source: Company data, J.P. Morgan estimates.
105
Bank Danamon (BDMN) BDMN (UW): Wholesale funded, high leverage, high yield business model under threat Meaningful restructuring is likely RoE is constrained due to highest cost/asset ratio in the region Risk-adjusted Ri k dj t d NIM NIMs to t decline d li going i forward f d due d to t bank’s b k’ inability i bilit tto ffully ll pass th the iincreased d
funding costs to customers and higher credit costs
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Bank has shifted its focus on revamping its mass-market segment and building a deposit
franchise We use a two-stage DDM to set our Jun-15 PT of Rp3,500. Key upside risks to our view
improvement in CASA franchise, lower funding costs and better than expected asset quality. Higher than expected loan growth (9% in FY14E) also poses a risk to our view.
Wholesale funded business model reflected via CASA 50% 46%
42%
39%
140.0
47% 44%
46%
129
130.0 43%
42%
40%
118
120.0 110.0
123
120
117
118
92
93
93
94
2013
2014E
2015E
2016E
104
100.0
38% 34%
High leverage business model reflected via LDR
90.0 80.0
33%
70.0 60.0
30% 2009
2010
2011
2012E
2013E
2014E
2015E
75 2010
2016E
80 2011
87
2012 Industry
Source: Company data, J.P. Morgan estimates.
Source: Company data, J.P. Morgan estimates.
106
BDMN
Highest costs/asset ratio 7.0
6.3
6.5 6.0
6.4
Revamped its focus to build a deposit franchise
4.5%
5.6
58 5.8
5.5
5.0%
6.1 5.2
5.0
5.0
3.5%
4.5 4.0
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
3.5
3.0%
4.2
4.1
4.1
4.1
4.0
3.9
3.8
2010
2011
2012
2013
2014E
2015E
2016E
3.0 Industry
2.5% 2.0%
BDMN
Source: Company data, J.P. Morgan estimates.
Source: CEIC, J.P. Morgan estimates.
Highest asset spread and lowest liability spread…. 100%
4.0%
NIM will be under pressure
1 05% 1.05%
80%
3.11%
60% 40%
8.19% 3.65%
20% 0% BDMN Asset Spread Source: Company data, J.P. Morgan estimates.
Sector Liability Spread Source: CEIC, J.P. Morgan estimates.
107
BDMN: Annual Income Statement
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Income Statement
Rp in Billion
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
2016E
Interest Income
8,129
10,896
12,048
14,189
15,683
14,418
16,882
18,858
20,131
23,136
26,801
32,757
Interest Ex pense
(3,416)
(5,148)
(4,790)
(5,699)
(6,075)
(4,372)
(5,861)
(5,755)
(6,410)
(9,348) (11,869) (14,714)
Net Interest Income
4,713
5,748
7,258
8,490
9,608
10,046
11,021
13,103
13,720
13,788
14,932
18,043
Non-Interest Income
1,475
1,424
1,819
1,803
3,179
3,939
4,309
5,113
5,643
6,315
7,044
7,864
Net Fee income
307
552
673
923
1,363
1,411
1,764
2,414
2,657
2,976
3,333
3,733
Trading income
-
-
-
-
294
233
(316)
116
152
221
281
359
Other operating income
1,168
872
1,145
880
1,522
2,295
2,861
2,583
2,835
3,118
3,430
3,773
Total Revenues
6,189
7,172
9,077
10,293
12,787
13,984
15,330
18,216
19,363
20,102
21,975
25,907
Costs
(3,216)
(3,679)
(4,550)
(5,876)
(5,836)
(6,289)
(8,259)
(9,500) (10,411) (11,043) (11,722) (13,086)
PPOP
2,973
3,493
4,527
4,418
6,951
7,695
7,071
8,716
8,952
9,060
10,253
12,822
Loan loss prov isions
215
(1,017)
(1,007)
(1,835)
(4,101)
(3,065)
(1,835)
(3,140)
(3,334)
(4,035)
(4,915)
(6,140)
Other prov isions
-
-
-
-
-
-
-
(5)
(13)
-
-
-
Gains on disposals Other income
(189)
(373)
(207)
95
(479)
(629)
(623)
(84)
(75)
(79)
(83)
(87)
2,998
2,103
3,314
2,678
2,371
4,001
4,613
5,487
5,530
4,946
5,255
6,595
Tax
(876)
(652)
(1,044)
(876)
(757)
(1,018)
(1,163)
(1,370)
(1,371)
(1,226)
(1,303)
(1,635)
Minorities and Ex tra Ordinary Ite
(119)
(126)
(153)
(272)
(81)
(100)
(113)
(105)
(118)
(105)
(112)
(140)
2,003
1,325
2,117
1,530
1,533
2,883
3,337
4,012
4,042
3,615
3,841
4,820
Pre-Tax
Core Attributable profit
Source: Company data, J.P. Morgan estimates.
108
BDMN: Annual DuPont Analysis
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
ROE breakdown
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
2016E
NIM (% of avg avg. IEA)
7 85% 7.85%
8 09% 8.09%
8 95% 8.95%
9 34% 9.34%
11 28% 11.28%
10 91% 10.91%
9 80% 9.80%
10 12% 10.12%
9 61% 9.61%
8 52% 8.52%
8 01% 8.01%
8 28% 8.28%
IEA/Assets
94.8%
94.9%
94.6%
92.5%
82.7%
84.9%
86.4%
87.0%
84.0%
82.2%
82.6%
83.2%
Margins (% of avg. Assets)
7.44%
7.67%
8.47%
8.63%
9.33%
9.27%
8.47%
8.80%
8.07%
7.01%
6.62%
6.89%
Non-IR contribution
23.8%
19.9%
20.0%
17.5%
24.9%
28.2%
28.1%
28.1%
29.1%
31.4%
32.1%
30.4%
Non-IR/Av Non IR/Av g. Assets
2.33%
1.90%
2.12%
1.83%
3.09%
3.63%
3.31%
3.43%
3.32%
3.21%
3.12%
3.00%
Revenue/Assets
9.78%
9.57%
10.59%
10.47%
12.42%
12.90%
11.79%
12.24%
11.39%
10.22%
9.74%
9.89%
Cost/Income
52.0%
51.3%
50.1%
57.1%
45.6%
45.0%
53.9%
52.2%
53.8%
54.9%
53.3%
50.5%
C/Assets
5.08%
4.91%
5.31%
5.98%
5.67%
5.80%
6.35%
6.38%
6.12%
5.61%
5.19%
5.00%
Pre-Provision ROA
4.70%
4.66%
5.28%
4.49%
6.75%
7.10%
5.44%
5.86%
5.27%
4.60%
4.54%
4.90%
LLP/Loans
0.64%
-2.55%
-2.09%
-3.05%
-6.30%
-4.20%
-1.99%
-2.88%
-2.67%
-2.90%
-3.24%
-3.61%
Loan/Assets
53.0%
53.2%
56.2%
61.2%
63.2%
67.3%
70.8%
73.2%
73.6%
70.7%
67.3%
64.9%
Operating ROA
5.0%
3.3%
4.11%
2.63%
2.77%
3.69%
3.55%
3.69%
3.25%
2.51%
2.33%
2.52%
Pre-Tax ROA
4.74%
2.81%
3.86%
2.72%
2.30%
3.69%
3.55%
3.69%
3.25%
2.51%
2.33%
2.52%
Core ROA
3.16%
1.77%
2.47%
1.56%
1.49%
2.66%
2.57%
2.70%
2.38%
1.84%
1.70%
1.84%
ROA
3.16%
1.77%
2.47%
1.56%
1.49%
2.66%
2.57%
2.70%
2.38%
1.84%
1.70%
1.84%
Core RoRWA
5.05%
2.79%
3.89%
2.40%
2.34%
3.61%
2.99%
3.13%
2.83%
2.12%
1.91%
2.07%
RoRWA
5.05%
2.79%
3.89%
2.40%
2.34%
3.61%
2.99%
3.13%
2.83%
2.12%
1.91%
2.07%
Equity /Assets
12.9%
12.0%
11.8%
10.9%
12.8%
15.8%
16.9%
18.2%
17.6%
16.5%
15.5%
14.5%
Core ROE
24.4%
14.7%
20.9%
14.3%
11.6%
16.8%
15.1%
14.8%
13.5%
11.1%
11.0%
12.7%
Source: Company data, J.P. Morgan estimates.
109
BDMN: Quarterly Income Statement
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Income Statement
Rp in Billion Interest Income Interest Ex pense Net Interest Income Non-Interest Income Net Fee income Trading income Other operating income Total Revenues Costs PPOP Loan loss prov isions Other prov isions Other income Pre-Tax Tax Profit before minorities MI and EO Core Attributable profit
1Q12 4 614 4,614 (1,469) 3,145 1,088 438 20 631 4,233 (2,179) 2 055 2,055 (669) (154) 1,232 (307) 925 (25) 900
2Q12 4 608 4,608 (1,374) 3,234 1,404 478 33 893 4,639 (2,185) 2 454 2,454 (755) (192) 1,507 (374) 1,133 (30) 1,103
3Q12 4 818 4,818 (1,471) 3,347 1,301 819 26 456 4,648 (2,612) 2 036 2,036 (523) (158) 1,354 (339) 1,015 (27) 988
4Q12 4 818 4,818 (1,442) 3,376 1,320 680 37 604 4,696 (2,524) 2 172 2,172 (1,193) (5) 420 1,393 (349) 1,044 (24) 1,020
1Q13 4 781 4,781 (1,402) 3,379 1,305 640 54 611 4,684 (2,478) 2 207 2,207 (823) (1) (12) 1,371 (342) 1,029 (24) 1,005
Source: Company data, J.P. Morgan estimates.
110
2Q13 4 890 4,890 (1,494) 3,395 1,421 676 22 724 4,817 (2,569) 2 248 2,248 (867) (5) (32) 1,344 (336) 1,008 (29) 980
3Q13 5 091 5,091 (1,624) 3,468 1,499 645 100 754 4,967 (2,695) 2 271 2,271 (841) (18) (9) 1,403 (349) 1,054 (32) 1,022
4Q13 5 369 5,369 (1,891) 3,478 1,417 695 (23) 745 4,895 (2,670) 2 226 2,226 (804) 11 (21) 1,412 (344) 1,068 (33) 1,035
1Q14 5 613 5,613 (2,131) 3,482 1,265 667 (36) 634 4,747 (2,672) 2 075 2,075 (853) (17) (6) 1,200 (296) 904 (29) 875
2Q14 5 682 5,682 (2,306) 3,376 1,213 689 2 522 4,589 (2,672) 1 917 1,917 (1,022) (29) (29) 837 (207) 630 (16) 614
BDMN: Quarterly DuPont Analysis ROE breakdown
NIM (% of avg. IEA)
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
9.60%
10.28%
9.99%
10.16%
10.09%
9.67%
9.58%
9.06%
8.62%
8.14%
91.6%
84.9%
88.6%
86.9%
86.6%
90.0%
87.5%
85.9%
87.3%
89.3%
Margins (% of avg. Assets
8.79%
8.72%
8.85%
8.83%
8.73%
8.71%
8.38%
7.79%
7.53%
7.27%
Non-IR contribution
25.7%
30.3%
28.0%
28.1%
27.9%
29.5%
30.2%
28.9%
26.7%
26.4%
3.03%
3.78%
3.44%
3.45%
3.37%
3.65%
3.62%
3.17%
2.73%
2.61%
11.80%
12.47%
12.29%
12.28%
12.11%
12.36%
12.00%
10.96%
10.26%
9.89%
Cost/Income
51.5%
47.1%
56.2%
53.8%
52.9%
53.3%
54.3%
54.5%
56.3%
58.2%
C/Assets
6.07%
5.88%
6.91%
6.60%
6.40%
6.59%
6.51%
5.98%
5.77%
5.76%
Revenue/Assets LIQUIDITY POSES GROWTH CHALLENGES
2Q12
IEA/Assets
Non-IR/Av g. Assets
ASEA AN Bank ks
1Q12
Pre-Provision ROA
5.73%
6.60%
5.38%
5.68%
5.70%
5.77%
5.49%
4.98%
4.49%
4.13%
-2.59%
-2.80%
-1.87%
-4.16%
-2.82%
-2.89%
-2.68%
-2.46%
-2.55%
-2.99%
Loan/Assets
72.1%
72.5%
73.8%
75.0%
75.4%
77.0%
75.7%
73.2%
72.4%
73.5%
Oth IIncome/Assets Other /A t
-0.4% 0 4%
-0.5% 0 5%
-0.4% 0 4%
1 1% 1.1%
0 0% 0.0%
-0.1% 0 1%
-0.1% 0 1%
0 0% 0.0%
0 0% 0.0%
-0.1% 0 1%
3.9%
4.6%
4.0%
2.6%
3.6%
3.5%
3.5%
3.2%
2.6%
1.9%
3.43%
4.05%
3.58%
3.64%
3.54%
3.45%
3.39%
3.16%
2.59%
1.80%
LLP/Loans
Operating ROA Pre-Tax ROA Tax Rate
-24.9%
-24.8%
-25.0%
-25.1%
-24.9%
-25.0%
-24.9%
-24.4%
-24.7%
-24.7%
Minorities & Outside Int.
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
-0.1%
0.0%
Core ROA
2 51% 2.51%
2 97% 2.97%
2 61% 2.61%
2 67% 2.67%
2 60% 2.60%
2 51% 2.51%
2 47% 2.47%
2 32% 2.32%
1 89% 1.89%
1 32% 1.32%
ROA
2.51%
2.97%
2.61%
2.67%
2.60%
2.51%
2.47%
2.32%
1.89%
1.32%
Core RoRWA
2.91%
3.58%
3.11%
3.15%
3.03%
2.83%
2.82%
2.73%
2.22%
1.51%
RoRWA
2.91%
3.58%
3.11%
3.15%
3.03%
2.83%
2.82%
2.73%
2.22%
1.51%
Equity /Assets
17.8%
17.5%
17.9%
18.3%
18.7%
18.8%
18.0%
17.2%
17.1%
17.1%
Core ROE
14.1%
16.9%
14.6%
14.6%
13.9%
13.3%
13.7%
13.5%
11.0%
7.7%
ROE
14.1%
16.9%
14.6%
14.6%
13.9%
13.3%
13.7%
13.5%
11.0%
7.7%
Source: Company data, J.P. Morgan estimates.
111
Bank Negara Indonesia Persero (BNI) BNI (UW): Improvement in liquidity prepares bank well for 2H14 BNI was the only bank to deliver a q/q improvement in asset quality and special mention
loans were up just 10bp q/q in 2Q, limiting risk of asset quality deterioration in 3Q The most remarkable aspect was the 15% q/q increase in deposits The bank started to cut rates in June and no special rates in August, all gone to below 9%
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
from close to 11% in May However, However management guidance was more conservative on growth and NIM outlook Our Jun-15 PT of Rp4,400 is based on a 2-stage DDM. We use a fair P/BV multiple of 1.30x
with a normalized RoE of 17.3%. Key upside risks to our view include better-than-expected funding costs (3.2%) and lower-than-expected credit costs (1.7%) during the year.
Target 2014 and progress in 1H14 Metric
Target 2014
Progress 1H2014
Trend
JPMe 2014
Loan growth
12% - 14%
2.7%
- ve
12.9%
Gross NPL
1.8% - 2.2%
2.2%
+ ve
2.2%
Coverage ratio
127% - 130%
128.9%
+ ve
125%
LDR (net loans)
85% - 87%
80.3%
+ ve
83.6%
Deposit growth
13% - 15%
7.6%
+ ve
12.6%
CASA growth
14% - 16%
-4.0%
- ve
10.0%
Saving growth
12% - 15%
-7.0%
- ve
10.0%
RoE
21% - 23%
22.6%
+ ve
18.7%
Source: Company data, J.P. Morgan estimates.
112
BNI: Annual Income Statement Income Statement
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Rp in bn
2009
2010
2011
2012
2013
2014E
2015E
2016E
Interest Income
19,447
18,837
20,692
22,705
26,451
32,278
37,265
41,646
Interest Ex pense
(8,314)
(7,098)
(7,497)
(7,246)
(7,392)
(9,736) (11,909) (12,629)
Net Interest Income
11,133
11,739
13,195
15,459
19,058
22,542
25,356
29,017
Non-Interest Non Interest Income
4 295 4,295
7 043 7,043
6 892 6,892
8 065 8,065
8 949 8,949
9 935 9,935
11 086 11,086
12 367 12,367
Net Fee income
2,231
2,381
2,374
2,732
3,507
4,208
4,839
5,565
Trading income
686
1,138
1,601
1,396
1,067
1,353
1,522
1,699
1,378
3,524
2,917
3,937
4,375
4,375
4,725
5,103
Total Revenues
15,428
18,783
20,087
23,524
28,007
32,478
36,442
41,384
Costs
(8,036)
(9,693) (10,892) (12,319) (14,080) (16,192) (18,135) (20,312)
PPOP
7,392
9,090
9,195
11,205
13,926
16,285
18,306
21,072
L Loan lloss prov iisions i
(4 006) (4,006)
(3 581) (3,581)
(1 953) (1,953)
(2 563) (2,563)
(2 571) (2,571)
(4 456) (4,456)
(5 978) (5,978)
(6 882) (6,882)
58
(24)
219
257
59
62
65
69
3,444
5,485
7,461
8,899
11,278
11,892
12,394
14,259
(957)
(1,382)
(1,653)
(1,851)
(2,220)
(2,341)
(2,440)
(2,807)
2,484
4,102
5,826
7,046
9,054
9,547
9,950
11,447
Other operating income
Other income Pre-Tax Tax Net Profit
Source: Company data, J.P. Morgan estimates.
113
BNI: Annual DuPont Analysis ROE breakdown
2009
2010
2011
2012
2013
2014E
2015E
2016E
NIM (% of avg. IEA)
5.92%
5.81%
6.00%
5.87%
6.11%
6.29%
6.16%
6.13%
IEA/Assets
87.6%
84.9%
80.3%
83.3%
86.6%
86.8%
87.9%
89.0%
Margins (% of av g. Ass
5.19%
4.93%
4.82%
4.89%
5.29%
5.46%
5.41%
5.46%
27.84%
37.50%
34.31%
34.29%
31.95%
30.59%
30.42%
29.88%
Non-IR/Av g. Assets
2.00%
2.96%
2.52%
2.55%
2.49%
2.41%
2.37%
2.33%
Rev enue/Assets
7 19% 7.19%
7 89% 7.89%
7 34% 7.34%
7 44% 7.44%
7 78% 7.78%
7 87% 7.87%
7 78% 7.78%
7 78% 7.78%
Cost/Income
52.1%
51.6%
54.2%
52.4%
50.3%
49.9%
49.8%
49.1%
C/Assets
3.74%
4.07%
3.98%
3.90%
3.91%
3.92%
3.87%
3.82%
Pre-Provision ROA
3.44%
3.82%
3.36%
3.54%
3.87%
3.95%
3.91%
3.96%
LLP/Loans
-3.49%
-2.78%
-1.30%
-1.41%
-1.14%
-1.67%
-1.99%
-2.01%
Loan/Assets
53.51%
54.02%
54.74%
57.56%
62.65%
64.58%
64.19%
64.44%
Other Income/Assets
0.03%
-0.01%
0.08%
0.08%
-0.02%
0.02%
0.01%
0.01%
Operating ROA
1.58%
2.30%
2.72%
2.81%
3.13%
2.88%
2.65%
2.68%
Pre-Tax ROA
1.60%
2.30%
2.72%
2.81%
3.13%
2.88%
2.65%
2.68%
-27.8% 27 8%
-25.2% 25 2%
-22.2% 22 2%
-20.8% 20 8%
-19.7% 19 7%
-19.7% 19 7%
-19.7% 19 7%
-19.7% 19 7%
Minorities & Outside Int.
0.00%
0.00%
0.01%
0.00%
0.00%
0.00%
0.00%
0.00%
ROA
1.16%
1.72%
2.13%
2.23%
2.52%
2.31%
2.12%
2.15%
RoRWA
1.89%
2.66%
3.25%
3.21%
3.31%
2.97%
2.74%
2.82%
Equity /Assets
8.05%
10.98%
12.94%
12.86%
12.67%
12.36%
12.35%
12.28%
ROE
14.4%
15.7%
16.4%
17.3%
19.9%
18.7%
17.2%
17.5%
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Non-IR contribution
Tax Rate
Source: Company data, J.P. Morgan estimates.
114
BNI: Quarterly Income Statement Income Statement
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Rp in bn
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
Interest Income
5,437
5,627
5,660
5,981
5,943
6,289
6,816
7,403
7,527
8,146
Interest Ex pense
(1,940)
(1,897)
(1,684)
(1,725)
(1,651)
(1,685)
(1,891)
(2,166) (2,237) (2,681)
Net Interest Income
3,497
3,730
3,976
4,256
4,292
4,605
4,924
5,238
5,289
5,464
Non-Interest Income
, 1,638
1,914 ,
1,914 ,
2,600 ,
2,124 ,
2,191 ,
2,455 ,
2,179 ,
2,248 ,
2,312 ,
Net Fee income
582
661
679
810
692
797
988
1,029
996
1,152
Trading income
381
186
449
379
335
163
553
16
317
205
Other operating income
675
1,067
785
1,411
1,096
1,231
914
1,134
935
954
Total Revenues
5 135 5,135
5 644 5,644
5 890 5,890
6 855 6,855
6 416 6,416
6 796 6,796
7 379 7,379
7 417 7,417
7 537 7,537
7 776 7,776
Costs
(2,534)
(2,740)
(3,102)
(3,943)
(3,315)
(3,050)
(3,493)
(4,221) (3,327) (3,724)
PPOP
2,601
2,904
2,788
2,913
3,100
3,745
3,885
3,195
Loan loss prov isions
(738)
(840)
(694)
(292)
(492)
(1,036)
Other income
101
77
78
1
62
1,963
2,142
2,172
2,622
(417)
(399)
(422)
((7))
3
1,540
1,746
Pre-Tax Tax MI & EO Net Profit
4,210
4,052
(883)
(160) (1,229)
(885)
44
(277)
231
34
115
2,560
2,750
2,804
3,165
3,011
3,196
(613)
(490)
(539)
(545)
(646)
(615)
(644)
2
((0))
((1))
((1))
((1))
((1))
((3))
((8))
1,751
2,009
2,069
2,209
2,258
2,518
2,393
2,543
Source: Company data, J.P. Morgan estimates.
115
BNI: Quarterly DuPont Analysis
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
ROE breakdown
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
NIM (% of avg. IEA)
6.00%
5.61%
5.77%
5.92%
6.16%
6.20%
5.89%
6.09%
6.08%
5.82%
IEA/Assets
79.3%
87.7%
87.8%
89.3%
85.4%
89.5%
94.8%
91.8%
91.8%
96.4%
Margins (% of av g. Ass
4.75%
4.92%
5.07%
5.29%
5.26%
5.55%
5.58%
5.59%
5.58%
5.61%
Non-IR contribution
31.90%
33.91%
32.49%
37.92%
33.11%
32.24%
33.26%
Non-IR/Av g. Assets
2.23%
2.53%
2.44%
3.23%
2.60%
2.64%
2.78%
2.33%
2.37%
2.37%
R enue/Assets Rev /A
6 98% 6.98%
7 45% 7.45%
7 51% 7.51%
8 52% 8.52%
7 86% 7.86%
8 19% 8.19%
8 36% 8.36%
7 92% 7.92%
7 95% 7.95%
7 98% 7.98%
Cost/Income
49.4%
48.5%
52.7%
57.5%
51.7%
44.9%
47.3%
56.9%
44.1%
47.9%
C/Assets
3.45%
3.62%
3.96%
4.90%
4.06%
3.68%
3.96%
4.51%
3.51%
3.82%
Pre-Provision ROA
3.54%
3.83%
3.56%
3.62%
3.80%
4.52%
4.40%
3.41%
4.44%
4.16%
LLP/Loans
-1 1.80% 80%
-1 1.95% 95%
-1 1.53% 53%
-0 0.61% 61%
-0 0.98% 98%
-1 1.96% 96%
-1 1.55% 55%
-0 0.26% 26%
-1 1.98% 98%
-1 1.40% 40%
Loan/Assets
55.76%
56.75%
58.00%
59.82%
61.42%
63.77%
64.76%
64.77% 65.61% 64.70%
Other Income/Assets
0.14%
0.10%
0.10%
0.00%
-0.06%
0.05%
-0.22%
0.14%
0.03%
0.03%
Operating ROA
2.53%
2.72%
2.67%
3.26%
3.20%
3.27%
3.40%
3.24%
3.15%
3.25%
Pre-Tax ROA
2.67%
2.83%
2.77%
3.26%
3.14%
3.32%
3.18%
3.38%
3.18%
3.28%
-21.2%
-18.6%
-19.4%
-23.4%
-19.1%
-19.6%
-19.4%
-20.4%
-20.4%
-20.2%
Minorities & Outside Int. -0.01%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
-0.01%
ROA
2.09%
2.30%
2.23%
2.50%
2.53%
2.66%
2.56%
2.69%
2.52%
2.61%
RoRWA
3.08%
3.22%
3.35%
3.66%
3.29%
3.37%
3.24%
3.41%
3.20%
3.32%
13 0 % 13.07%
12 93% 12.93%
12 82% 12.82%
13 16% 13.16%
13 9% 13.59%
13 46% 13.46%
12 1% 12.71%
16.0%
17.8%
17.4%
19.0%
18.7%
19.8%
20.1%
Tax Rate
E i /Assets Equity /A ROE
Source: Company data, J.P. Morgan estimates.
116
29.38% 29.82% 29.73%
12 46% 13.03% 12.46% 13 03% 13.14% 13 14% 21.6%
19.4%
19.9%
ASEA AN Bank ks LIQUIDITY POSES GROWTH CHALLENGES
Philippine pp Banks
117
Philippines - Investment Summary Attractive banking system but stocks
appear fully priced. Best liquidity position iti iin th the region i iin tterms off CASA CASA, LAR, LDR and underpenetrated market g growth trending g above 20% y/y y y from Mar-Jun 14 But consumer loan growth has started to
slow down
Price Company Rating
PE (x)
PB (x)
RoE (%)
(LC)
2014E
2015E
2014E
2015E
2014E
2015E
BDO
OW
90
16.2
13.4
1.94
1.74
12.3
13.6
BPI
UW
97
22.8
17.0
2.76
2.52
13.7
15.5
CHIB
OW
52
16.1
12.8
1.47
1.39
9.7
11.1
EW
UW
29
15.6
12.3
1.54
1.37
10.4
11.8
MBT
N
86
14.6
13.5
1.76
1.62
12.3
12.6
PNB
N
89
17.7
14.6
1.02
0.97
6.3
6.8
SECB
OW
127
10.7
10.9
1.60
1.45
16.0
13.8
Source: Bloomberg and J.P.Morgan estimates. Price as of 28th Aug 2014.
BSP introduced REST, requiring banks
to put up more capital for real estate loans, effectively increasing risk weights Legislative changes to spur M&A in the
industry BSP raised reserve requirements by
200bp in March-May March May to 20% and SDA by 25bp in May
Real estate loan growth is easing 1,000
20.0%
800
18.0%
600
16.0%
400
14.0%
200
12.0%
0
10.0%
SECB is our preferred pick due to its solid
execution on turnaround and razor-sharp focus on RoRWA
Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
NII continues to be robust, driven by loan
Philippine Banks Valuation
Real Estate Loans Source: Bloomberg
118
REL % of Total Loan Portfolio
Key Catalysts Real estate stress test
ASEA AN Bank ks
Limit to lending – banks can only lend to the extent of their capital or raise more capital to fund real estate lending. R E drag RoE d – We W think thi k thi this will ill d drag d down b banks’ k ’ ROE on reall estate loans, e.g., instead of a CET 1 requirement of 6%, they now need to keep 29.5% of capital.
27%
24%
21%
Asian financial crisis
18%
Sources: BSP
PPP Projects YTD Project j
Cost
Status
Automatic Fare Collection System*
Php1.72bn
Contract Awarded
Mactan-Cebu International Airport Passenger Terminal Building*
Php17.52bn
Contract Awarded
Cavite-Laguna Expressway*
Php35.42bn
Waiting for Contract Award
LRT Line 1 Cavite Extension and O&M*
Php64.90bn
Waiting for Contract Award
Integrated Transport System Project - Southwest Terminal
Php2.50bn
Bid submission ongoing
Bulacan Bulk Water Supply Project
Php24.40bn
Waiting for bid documents
Integrated Transport System Project - South Terminal
Php5.20bn
Waiting for bid documents
New Centennial Water Supply Source Project
Php18.72bn
Waiting for bid documents
*Total Projects Bid Out YTD
Php119.56bn
Sources: Public-Private Partnership Center.
119
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
15%
1990
LIQUIDITY POSES GROWTH CHALLENGES
BSP introduced the real estate stress test (REST) in Jun14 requiring 14, ii b banks k tto maintain i t i a CET 1 off 6% and d CAR off 10% after a 25% write-off on its property books.
FAI as a % of GDP – pickup will boost loan growth
Key Changes in Legislation President Aquino has signed an amendment allowing foreign banks to own 100% of Philippine
banks (from the previous 60%) 60%). A key foreclosed property rule was also amended, with foreign banks now allowed to participate in
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
foreclosure sales beyond 5 years, albeit with an annual 0.5% fine. This will attract regional players as the Philippines is a high growth market offering 100% ownership ownership,
a rarity. M&A has kicked off with a couple of small transactions: BDO acquisition of Real Bank (Php7.2bn in
deposits) and Lucio Co buying a stake on PBCom (21st largest bank as of Mar-14). Philippine banks recent M&A transactions Announcement Date 7/23/2014 6/30/2014 4/28/2014 11/14/2013 10/23/2013 9/18/2013 1/8/2013 11/20/2012 6/21/2012 8/23/2011 6/2/2011
Target Name
Acquirer Name
Philippine Bank of Communications The Real Bank Banco Dipolog Inc Citibank Savings Inc Cooperative Bank of Pampanga Planters Development Bank City Savings Bank Inc Unity Bank/Philippines Finman Rural Bank Inc Green Bank Premiere Development Bank
Union Equities BDO Unibank Inc Philippine Bank of Communications BDO Unibank Inc Asia United Bank China Banking Corp Union Bank of Philippines Inc China Banking Corp East West Banking Corp Filinvest Development Corp Security Bank Corp
Source: Bloomberg
120
Target P/B multiple (x) 1.63
1.35 2.50 1.33
1.60
Economic Indicators Real GDP growth
OFW remittances
10.0%
6.0%
30
5.0%
20
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
0.0% -5.0% 5 0%
10
-10.0%
0
Source: Bloomberg
Source: Bloomberg
PHP – USD trend
Inflation trend 10.0%
60.0 55.0 50.0 45.0 40.0 35.0 30.0 25.0 20.0
9 0% 9.0% 44 44.4
8.0% 7.0% 6.0%
4.2%
5.0%
3.8%
4.0% 3.0% 1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2.0% 1995
Source: Bloomberg and J.P. Morgan estimates
1997
1999
2001
2003
Source: Bloomberg and J.P. Morgan estimates
121
2005
2007
2009
2011
2013
2015E
Capital Framework BSP has implemented fully phased-in Basel III in Philippines starting 1 Jan 2014, without any
transitional arrangements arrangements. CET1 requirement has moved to minimum 6% with T1 of 7.5% and CAR of 10%. In addition, 2.5%
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
of capital conservation buffer will be added in the form of CET1. System CAR stood at 17.6% 17 6% with T1 ratio at 15.8% 15 8% as of 2013 2013, which the BSP considers adequate adequate. While the implementation of Basel III has limited impact on the capital position in the industry, banks
have raised capital (Php25bn rights for BPI, Php11bn for PNB) to fund growth and maintain a buffer. Philippines capital requirement Min requirements Common equity eq it Tier 1 Tier 1 Total CAR
Existing Basel Basel III per BSP II per BSP minimum ratios NA N.A. 5.0% 10.0%
6 0% 6.0% 7.5% 10.0%
Basel III per BSP with 2.5% Capital Conservation buffer applied to CET1 and T1 only 8 5% 8.5% 10.0% 10.0%
Source: BSP
122
Liquidity Framework Philippines facing a problem of plenty
M3 Y/Y growth
The country has attracted Php50bn
40
30
20
Money supply growth and channeled to bank
0
On 20 May 2013, BSP decided to curtail access
to SDA
Dec-02 May-03 Oct-03 Mar-04 Aug-04 Jan-05 Jun-05 Nov-05 Apr-06 Sep-06 Feb-07 Jul-07 Dec-07 May-08 Oct-08 Mar-09 Aug-09 Jan-10 Jun-10 Nov-10 Apr-11 Sep-11 Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14
10
deposits, however loan growth remained low leading to money being diverted to SDA
Source: Bloomberg
OFW remittances Y/Y growth (%)
RR was recently hiked by 200bp to 20% 22
30
21
20
20
19
10
JJan-14
17 Feb-04
May-14 M
Sep-13 S
JJan-13
May-13 M
Sep-12 S
JJan-12
May-12 M
Sep-11 S
JJan-11
May-11 M
Sep-10 S
JJan-10
May-10 M
Sep-09 S
JJan-09
May-09 M
Sep-08 S
JJan-08
May-08 M
Sep-07 S
0
JJan-07
18
May-07 M
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
(US$13.5bn) of inflows in the last five years from OFW (Php318bn/US$7.4bn) and BPO proceeds
Source: Bloomberg
Feb-05
Source: Bloomberg
123
Feb-06
Feb-07
Feb-08
Feb-09
Feb-10
Feb-11
Feb-12
Feb-13
Feb-14
Liquidity Framework (cont’d) (cont d) Loan growth declined and stayed low till mid-2010
SDAs surged in 2010-11 and are now correcting
30
2,100
20
1,700
10 1,300
ASEA AN Bank ks
-10
Jan-14
May-14
Sep-13
Jan-13
May-13
Sep-12
Jan-12
May-12
Sep-11
Jan-11
May-11
Sep-10
Jan-10
May-10
Sep-09
Jan-09
May-09
Sep-08
Jan-08
May-08
Sep-07
Jan-07
May-07
Jan-06
-20
Sep-06
900 May-06
LIQUIDITY POSES GROWTH CHALLENGES
0
Source: Bloomberg
500
Source: Bloomberg
PHP appreciated in line with ADXY till May
SDA rate was hiked in May-14 after cuts in the past three years 38
118 40 113
42
108
44 46
103
55 5.5
4.5
3.5
48 98 93 Jan-08
50 52 Jan-09
Jan-10
Jan-11 ADXY
Jan-12
Jan-13
Jan-14
2.5
1.5 Jan-10
Jul-10
USDPHP
Source: Bloomberg
Source: Bloomberg
124
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Liquidity Framework (cont’d) (cont d) Schematic of ROE for Loans vs. Securities
Banks don’t have much choice but to grow their loan books In I the th past, t the th banks’ b k ’ high hi h RoE R E came from f intermediating i t di ti
savings from population to the government bonds
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
We expect banks’ loan growth to grow at ~20% on the back of
q y and spike p in g government bond yyield abundant liquidity Loans do not come with mark-to-market risk, and yield more
than securities Credit risk in the system is low for now, hence risk-adjusted risk adjusted
NIMs will stay high
Loan to asset ratio
Securities
Loans
Av g. IEA Yield
8.40%
11.40%
Av g. IBL Cost
6.00%
6.00%
NIM (% of avg. IEA)
2.40%
5.40%
IEA/Assets
90.0%
90.0%
Margins (% of avg. Assets)
2.16%
4.86%
Non-IR/Av Non IR/Av g. Assets
0.50%
0.50%
Revenue/Assets
2.66%
5.36%
Cost/Income
65.0%
65.0%
C/Assets
1.73%
3.48%
Pre-Provision ROA
0.93%
1.88%
LLP/L LLP/Loans
0 00% 0.00%
-0.80% 0 80%
Loan/Assets
50.0%
50.0%
Pre-Tax ROA
0.93%
1.48%
Tax Rate
25.0%
25.0%
ROA
1.16%
1.85%
RoRWA
3.88%
1.85%
RWA/Assets
30%
100%
Equity /Assets
7.0%
15.0%
ROE
16.6%
12.3%
Source: J.P. Morgan estimates.
Source: Company data and J.P.Morgan estimates
125
Bank of the Philippine Islands (BPI) BPI (UW): High growth priced in, RoE to move structurally lower post capital call RoE to decrease to 12.5% in 2014 on lack of trading gains, NIM compression, and higher capital base Investment phase leading to consistently higher costs (above 50% CIR for 2015-16E)
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Premium valuations at 2.5x FY15E P/BV, with risk of value-eroding deal We use a two-stage DDM to arrive at our PT of Php85. Key assumptions are CoE of 10.5%, RoE of
15.1% and a terminal growth rate of 6.5%. Key upside risks to our view include faster than expected loan growth, NIM resilience and faster non-interest income growth (15% CAGR in 2014E-16E). Also, tighter policy stance is a risk for industry growth and hence BPI.
Low Cost/Asset ratio
Declining Loan Growth
3.00
25.0% 20.0%
2.75
15.0% 2.50
10 0% 10.0% 2.25
5.0% 0.0%
2.00 2008
2009
2010
2011
2012
2013
2014E
2015E
2016E
2009
Source: Company data, J.P. Morgan estimates.
2010
2011
2012
Source: Company data, J.P. Morgan estimates.
126
2013
2014E
2015E
2016E
BPI: Annual Income Statement
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Income Statement (Php MM)
2008
2009
2010
2011
2012
2013
2014E
2015E
2016E
I Interest IIncome
33 29 33,297
33 88 33,887
36 98 36,987
38 689 38,689
40 109 40,109
40 802 40,802
4 4 0 47,450
59,509 9 09
68 181 68,181
Interest Ex pense
(13,834) (12,485) (13,359) (12,823) (12,655) (10,478) (11,041) (14,377) (17,738)
Net Interest Income
19,463
21,402
23,628
25,866
27,454
30,324
36,409
45,132
50,443
Non-Interest Income
10,321 ,
12,993 ,
14,779 ,
15,891 ,
19,931 ,
22,174 ,
18,701 ,
21,458 ,
24,746 ,
Net Fee income
3,056
3,430
4,160
4,607
5,111
5,885
6,944
8,194
9,669
Trading income
1,196
3,220
5,150
4,718
7,590
6,881
3,290
3,527
3,879
Other operating income
6,069
6,343
5,469
6,566
7,230
9,408
8,467
9,737
11,198
Total Revenues Re en es
29 784 29,784
34 395 34,395
38 407 38,407
41 757 41,757
47 385 47,385
52 498 52,498
55 110 55,110
66 590 66,590
75 189 75,189
Costs
(18,312) (19,676) (20,954) (23,356) (24,802) (26,703) (30,438) (33,527) (36,935)
PPOP
11,472
14,719
17,453
18,401
22,583
25,795
24,672
33,063
38,255
Loan loss prov isions
(1,930)
(2,535)
(3,454)
(2,150)
(2,923)
(2,648)
(3,647)
(4,730)
(6,600)
-
-
-
-
-
-
-
-
-
Pre-Tax
9,542
12,184
13,999
16,251
19,660
23,147
21,025
28,333
31,655
Tax
(2,985)
(3,519)
(2,520)
(3,162)
(3,158)
(4,153)
(4,205)
(5,667)
(6,331)
(134)
(149)
(167)
(190)
(150)
(183)
(166)
(224)
(250)
6,423
8,516
11,312
12,899
16,352
18,811
16,654
22,442
25,074
Other income
MI & EO Attributable Profits
Source: Company data, J.P. Morgan estimates.
127
BPI: Annual DuPont Analysis
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
ROE breakdown
2008
2009
2010
2011
2012
2013
2014E
2015E
2016E
NIM (% of avg. avg IEA)
3 30% 3.30%
3 74% 3.74%
3 60% 3.60%
3 72% 3.72%
3 57% 3.57%
3 31% 3.31%
3 21% 3.21%
3 55% 3.55%
3 57% 3.57%
IEA/Assets
90.4%
82.3%
81.9%
80.8%
84.2%
84.0%
87.7%
86.6%
86.7%
Margins (% of av g. Assets
2.99%
3.08%
2.95%
3.01%
3.00%
2.78%
2.82%
3.07%
3.09%
Non-IR contribution
34.65%
37.78%
38.48%
38.06%
42.06%
42.24%
33.93%
32.22%
32.91%
Non-IR/Av g. Assets
1.58%
1.87%
1.84%
1.85%
2.18%
2.03%
1.45%
1.46%
1.52%
Rev enue/Assets
4.57%
4.95%
4.79%
4.85%
5.18%
4.81%
4.27%
4.54%
4.61%
Cost/Income
61.5%
57.2%
54.6%
55.9%
52.3%
50.9%
55.2%
50.3%
49.1%
C/Assets
2.81%
2.83%
2.62%
2.71%
2.71%
2.45%
2.36%
2.28%
2.26%
Pre-Provision ROA
1.76%
2.12%
2.18%
2.14%
2.47%
2.37%
1.91%
2.25%
2.34%
LLP/Loans
-0.63% 0 63%
-0.76% 0 76%
-0.95% 0 95%
-0.50% 0 50%
-0.58% 0 58%
-0.45% 0 45%
-0.51% 0 51%
-0.54% 0 54%
-0.65% 0 65%
Loan/Assets
46.64%
47.75%
45.26%
49.64%
54.87%
54.37%
55.79%
59.23%
62.70%
Other Income/Assets
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Operating ROA
1.46%
1.75%
1.75%
1.89%
2.15%
2.12%
1.63%
1.93%
1.94%
Pre-Tax ROA
1.46%
1.75%
1.75%
1.89%
2.15%
2.12%
1.63%
1.93%
1.94%
Tax Rate
-31.3%
-28.9%
-18.0%
-19.5%
-16.1%
-17.9%
-20.0%
-20.0%
-20.0%
Minorities & Outside Int.
-0.02%
-0.02%
-0.02%
-0.02%
-0.02%
-0.02%
-0.01%
-0.02%
-0.02%
Core ROA
0.99%
1.22%
1.41%
1.50%
1.79%
1.73%
1.29%
1.53%
1.54%
Core RoRWA
1.70%
2.06%
2.50%
2.48%
2.74%
2.80%
2.07%
2.35%
2.36%
E it /A Equity /Assets t
10 20% 10.20%
9 33% 9.33%
9 22% 9.22%
9 89% 9.89%
10 17% 10.17%
9 23% 9.23%
10 33% 10.33%
9 86% 9.86%
9 72% 9.72%
9.7%
13.1%
15.3%
15.2%
17.6%
18.7%
12.5%
15.5%
15.8%
Core ROE
Source: Company data, J.P. Morgan estimates.
128
BPI: Quarterly Income Statement
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Income Statement (Php MM)
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14 3Q14E 4Q14E
Net Interest Income
6,820
6,923
6,736
6,976
7,105
7,536
7,746
7,937
8,186
8,665
9,370 10,188
Non-Interest Income
6,804
4,136
4,418
4,572
9,394
4,091
4,199
4,491
4,182
4,992
4,536
4,991
Net Fee income
1,129
1,357
1,236
1,389
1,396
1,528
1,327
1,634
1,707
1,561
1,764
1,914
Trading income
4,319
791
1,415
1,066
6,559
(641)
416
546
412
1,299
705
873
Other operating income
1,357
1,988
1,768
2,117
1,439
3,203
2,455
2,310
2,063
2,132
2,068
2,204
Total Revenues
13,624 11,059 11,154 11,548 16,499 11,626 11,944 12,428 12,368 13,657 13,906 15,179
C t Costs
(6 169) (5,794) (6,169) (5 794) (5,863) (5 863) (6,977) (6 977) (6,600) (6 600) (6,126) (6 126) (6,314) (6 314) (7,664) (7 664) (6,723) (6 723) (7,339) (7 339) (7,553) (7 553) (8,823) (8 823)
PPOP
7,455
5,265
5,291
4,571
9,900
5,501
5,631
4,764
5,645
6,318
6,352
6,356
(982)
(636)
(663)
(641)
(628)
(645)
(652)
(722)
(915)
(864)
(892)
(976)
6 473 6,473
4 629 4,629
4 628 4,628
3 930 3,930
9 271 9,271
4 855 4,855
4 979 4,979
4 042 4,042
4 730 4,730
5 454 5,454
5 460 5,460
5 381 5,381
(593)
(966)
(851)
(748)
5,880
3,663
3,777
3,183
8,471
3,655
3,803
3,065
3,615
4,418
4,424
4,363
(46)
(47)
(16)
(41)
(102)
0
(64)
(17)
(12)
8
(80)
(82)
5,834
3,616
3,761
3,142
8,369
3,655
3,739
3,048
3,603
4,427
4,344
4,280
Loan loss prov isions Pre Tax Pre-Tax Tax Profit before minorities MI and EO Attributable Profit
(800) (1,201) (1,176)
Source: Company data, J.P. Morgan estimates.
129
(976) (1,115) (1,036) (1,037) (1,018)
BPI: Quarterly DuPont Analysis
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
ROE breakdown
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14E
4Q14E
NIM (% of avg. avg IEA)
3 83% 3.83%
3 76% 3.76%
3 41% 3.41%
3 42% 3.42%
3 51% 3.51%
3 55% 3.55%
3 30% 3.30%
3 00% 3.00%
3 00% 3.00%
3 20% 3.20%
3 32% 3.32%
3 32% 3.32%
IEA/Assets
86.7%
87.8%
89.5%
88.2%
84.1%
86.7%
89.3%
92.9%
90.6%
86.2%
85.6%
89.9%
Margins (% of av g. Assets)
3.32%
3.30%
3.05%
3.01%
2.95%
3.08%
2.95%
2.79%
2.72%
2.76%
2.84%
2.99%
of this other rev enues
9.96% 17.98% 15.85% 18.33%
8.72% 27.55% 20.56% 18.59% 16.68% 15.61% 14.87% 14.52%
Non-IR/Av gg. Assets
3.30% %
1.94% %
2.00% %
1.97% %
3.90% %
1.67% %
1.60% %
1.58% %
1.39% %
1.59% %
1.37% %
1.46% %
Rev enue/Assets
6.60%
5.18%
5.05%
4.99%
6.86%
4.75%
4.54%
4.36%
4.11%
4.35%
4.21%
4.45%
Cost/Income
45.3%
52.4%
52.6%
60.4%
40.0%
52.7%
52.9%
61.7%
54.4%
53.7%
54.3%
58.1%
C/Assets
2.99%
2.72%
2.66%
3.01%
2.74%
2.50%
2.40%
2.69%
2.23%
2.34%
2.29%
2.59%
Pre-Provision ROA
3.61%
2.47%
2.40%
1.97%
4.11%
2.25%
2.14%
1.67%
1.87%
2.01%
1.92%
1.86%
LLP/Loans
-0.87%
-0.55%
-0.54%
-0.50%
-0.47%
-0.47%
-0.46%
-0.48%
-0.56%
-0.51%
-0.49%
-0.51%
Loan/Assets
54.98% 54.69% 55.39% 55.32% 55.26% 56.27% 54.06% 53.01% 54.06% 54.32% 55.05% 56.31%
Other Income/Assets
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Pre-Tax ROA
3.14%
2.17%
2.10%
1.70%
3.85%
1.98%
1.89%
1.42%
1.57%
1.74%
1.65%
1.58%
Tax Rate
-9.16% -20.87% -18.39% -19.03%
Minorities & Outside Int.
-8.63% -24.73% -23.62% -24.15% -23.56% -18.99% -18.99% -18.92%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Core ROA
2.83%
1.69%
1.70%
1.36%
3.48%
1.49%
1.42%
1.07%
1.20%
1.41%
1.32%
1.26%
Core RoRWA
4.27%
2.58%
2.56%
2.04%
5.17%
2.26%
2.29%
1.78%
1.93%
2.17%
2.03%
1.93%
E it /A Equity /Assets t
11 02% 10.76% 11.02% 10 76% 10.60% 10 60% 10.41% 10 41% 10.55% 10 55% 10.63% 10 63%
9 89% 9.89%
9 24% 9.24%
9 79% 10.49% 9.79% 10 49% 10.20% 10 20% 10.07% 10 07%
Core ROE
25.67% 15.75% 16.07% 13.03% 32.98% 14.04% 14.37% 11.58% 12.22% 13.43% 12.90% 12.46%
Source: Company data, J.P. Morgan estimates.
130
B Banco de d O Oro (BDO) BDO (OW): Still offers positive risk-return trade-off, in our view Outperformed growth expectations YTS with 28% y/y loan growth Treasury mark-to-market risk no longer an issue barring any large shift in yields
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Expect 25bp NIM expansion in 2015E as asset yields pick up We use a two-stage DDM to arrive at our Jun-15 PT of Php95. Key assumptions are a CoE of
10.5%, RoE of 13.8% and a terminal growth rate of 6.5%. Upside risks to our rating and PT include better-than-expected cost management, loan growth, and NIM. Key downside risks to our view include a capital call, a value-eroding acquisition, NIM compression, and a loss of market share.
AFS Reserves/BV held up well in 1H14
Cost/Asset have improved, but limited upside from here
20,000
10.0%
16,000
8.0%
12,000
6.0%
8,000
4.0%
4,000
2.0%
4.00%
3.50%
3.00%
-
0.0% 1Q13
2Q13
3Q13 AFS Reserves R
4Q13
1Q14
2.50%
2Q14
2008
2009
2010
2011
2012
AFS Reserves/BV R /BV
Source: Company data, J.P. Morgan estimates.
Source: Company data, J.P. Morgan estimates.
131
2013
2014E
2015E
2016E
BDO: Annual Income Statement
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Income Statement (Php MM)
2008
2009
2010
2011
2012
2013
2014E
2015E
2016E
Interest Income
42,359
48,810
49,930
50,467
54,014
56,606
63,528
76,329
88,316
Interest Ex pense
(19,323) (18,251) (15,772) (16,866) (17,893) (13,440) (12,489) (15,235) (19,749)
Net Interest Income
23,036
30,559
34,158
33,601
36,121
43,166
51,039
61,094
68,568
Non-Interest Non Interest Income
13,731
15,483
17,841
20,899
24,427
31,844
26,317
29,115
32,236
Net Fee income
7,419
8,351
8,930
10,528
11,446
12,991
14,680
16,588
18,745
Trading income
1,737
4,006
5,846
5,621
8,233
12,764
5,487
5,762
6,050
Other operating income
4,575
3,126
3,065
4,750
4,748
6,089
6,150
6,765
7,441
Total Revenues
36 68 36,768
46 042 46,042
51,999 1 999
54,500 4 00
60 48 60,548
75,010 010
77,356 3 6
90 209 90,209
100 803 100,803
Costs
(27,853) (32,129) (34,789) (35,773) (39,494) (43,259) (48,822) (54,575) (60,379)
PPOP
8,915
13,913
17,210
18,727
21,054
31,751
28,534
35,634
40,424
Loan loss pprov isions
((5,232) , )
((6,153) , )
((6,698) , )
((6,144) , )
((4,941) , )
((7,001) , )
((5,773) , )
((8,286) , )
((9,821) , )
Pre-Tax
3,683
7,760
10,512
12,583
16,113
24,750
22,760
27,348
30,603
Tax
(1,445)
(1,659)
(1,631)
(1,739)
(1,571)
(2,104)
(2,458)
(3,008)
(3,519)
MI & EO
(56)
(66)
(56)
(57)
(59)
(38)
(50)
(60)
(67)
P f d Div Preferred Di idend id d
-
(84)
(330)
(330)
(330)
(340)
(340)
(340)
(340)
Reported Profits
2,182
5,951
8,495
10,457
14,153
22,268
19,912
23,940
26,677
Source: Company data, J.P. Morgan estimates.
132
BDO: Annual DuPont Analysis ROE breakdown
2008
2009
2010
2011
2012
2013
2014E
2015E
2016E
NIM (% of avg. avg IEA)
3 42% 3.42%
3 83% 3.83%
4 13% 4.13%
3 52% 3.52%
3 37% 3.37%
3 17% 3.17%
3 09% 3.09%
3 34% 3.34%
3 34% 3.34%
IEA/Assets
94.9%
95.9%
88.8%
91.1%
91.8%
93.4%
96.0%
98.2%
98.7%
Margins (% of avg. As
3.25%
3.67%
3.67%
3.21%
3.09%
2.96%
2.97%
3.28%
3.30%
37.35%
33.63%
34.31%
38.35%
40.34%
42.45%
34.02%
32.28%
31.98%
Non-IR/Av g. Assets
1.94%
1.86%
1.92%
2.00%
2.09%
2.19%
1.53%
1.56%
1.55%
Rev enue/Assets
5.18%
5.53%
5.58%
5.20%
5.18%
5.15%
4.50%
4.84%
4.84%
Cost/Income
75.8%
69.8%
66.9%
65.6%
65.2%
57.7%
63.1%
60.5%
59.9%
C/Assets
3.93%
3.86%
3.73%
3.41%
3.38%
2.97%
2.84%
2.93%
2.90%
Pre-Prov ision ROA
1.26%
1.67%
1.85%
1.79%
1.80%
2.18%
1.66%
1.91%
1.94%
LLP/Loans
-1.52% 1 52%
-1.31% 1 31%
-1.18% 1 18%
-0.95% 0 95%
-0.66% 0 66%
-0.81% 0 81%
-0.55% 0 55%
-0.66% 0 66%
-0.66% 0 66%
Loan/Assets
48.61%
56.29%
60.84%
61.60%
63.82%
59.66%
60.64%
67.08%
71.62%
Other Income/Assets
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Operating ROA
0.52%
0.93%
1.13%
1.20%
1.38%
1.70%
1.32%
1.47%
1.47%
Pre-Tax ROA
0.52%
0.93%
1.13%
1.20%
1.38%
1.70%
1.32%
1.47%
1.47%
Tax Rate
-39.2%
-21.4%
-15.5%
-13.8%
-9.7%
-8.5%
-10.8%
-11.0%
-11.5%
Minorities & Outside Int.
-0.01%
-0.01%
-0.01%
-0.01%
-0.01%
0.00%
0.00%
0.00%
0.00%
Core ROA
0.31%
0.72%
0.91%
1.00%
1.21%
1.53%
1.16%
1.28%
1.28%
Core RoRWA
NA
0.87%
1.19%
1.36%
1.65%
2.24%
1.68%
1.71%
1.69%
Equity /Assets
8.29%
7.21%
7.80%
8.17%
10.14%
10.54%
9.44%
9.43%
9.42%
3.7%
9.9%
11.7%
12.2%
12.0%
14.5%
12.3%
13.6%
13.6%
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Non-IR contribution
Core ROE Source: Company data, J.P. Morgan estimates.
133
BDO: Quarterly Income Statement Income Statement (Php MM)
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14E
4Q14E
Interest Income
12,993 13,488
13,822
13,711
13,463
13,528
14,226
15,389
15,179
15,462
16,067
16,820
Interest Ex pense
(4,594) (4,525)
(4,389)
(4,385)
(3,901)
(3,227)
(3,057)
(3,255)
(2,994)
(2,970)
(3,164)
(3,361)
Net Interest Income
8,399
8,963
9,433
9,326
9,562
10,301
11,169
12,134
12,185
12,492
12,903
13,458
Non-Interest Non Interest Income
5,792
5,394
7,728
5,513
13,294
6,990
5,512
6,048
7,026
7,259
5,831
6,201
Net Fee income
2,755
3,085
2,676
2,930
2,821
3,561
3,089
3,520
3,298
3,780
3,667
3,935
Trading income
2,071
1,148
3,812
1,202
9,196
1,767
901
900
2,174
2,009
650
654
966
1,161
1,240
1,381
1,277
1,662
1,522
1,628
1,554
1,470
1,514
1,612
T t l Revenues Total R
14 191 14,357 14,191 14 357
17 161 17,161
14 839 14,839
22 856 22,856
17 291 17,291
16 681 16,681
18 182 18,182
19 211 19,211
19 751 19,751
18 734 18,734
19 660 19,660
Costs
(9,647) (9,737) (10,333)
(9,777) (10,512) (10,577) (11,001) (11,169) (11,900) (12,335) (12,609) (11,978)
PPOP
4,544
4,620
6,828
5,062
12,344
6,714
5,680
7,013
7,311
7,416
6,125
7,682
Loan loss prov isions
(1,297) (1,225)
(1,719)
(700)
(1,876)
(2,125)
(1,118)
(1,882)
(1,293)
(1,260)
(1,530)
(1,691)
Pre-Tax
3,247
3,395
5,109
4,362
10,468
4,589
4,562
5,131
6,018
6,156
4,595
5,991
(423)
(389)
(361)
(398)
(418)
(467)
(507)
(712)
(547)
(572)
(574)
(765)
(14)
(16)
(13)
(16)
(15)
(9)
(9)
(5)
3
(10)
(20)
(23)
Other operating income
Tax MI and EO Preferred Div idends
(330)
-
-
-
(340)
-
-
-
(340)
-
-
-
Reported Profits
2,480
2,990
4,735
3,948
9,695
4,113
4,046
4,414
5,134
5,574
4,001
5,204
Source: Company data, J.P. Morgan estimates.
134
BDO: Quarterly DuPont Analysis ROE breakdown
1Q12
2Q12
NIM (% of avg. IEA)
3.32%
3.38%
3.52%
3.33%
3.33%
3.45%
3.36%
3.25%
3.12%
3.17%
3.28%
3.26%
IEA/Assets
92.3%
93.5%
91.4%
92.7%
92.5%
93.0%
93.7%
93.9%
94.2%
94.7%
92.4%
94.6%
Margins (% of avg. Assets 3.07%
3.16%
3.22%
3.09%
3.08%
3.21%
3.15%
3.05%
2.94%
3.00%
3.03%
3.08%
40.81% 37.57%
45.03%
37.15%
58.16%
40.43%
33.04%
33.26%
36.57%
36.75%
31.12%
31.54%
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Non-IR contribution
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14E
4Q14E
Non-IR/Av g. Assets
2.12%
1.90%
2.64%
1.83%
4.29%
2.18%
1.55%
1.52%
1.69%
1.74%
1.37%
1.42%
Rev enue/Assets
5.18%
5.06%
5.85%
4.91%
7.37%
5.38%
4.70%
4.57%
4.63%
4.75%
4.40%
4.50%
Cost/Income
68.0%
67.8%
60.2%
65.9%
46.0%
61.2%
65.9%
61.4%
61.9%
62.5%
67.3%
60.9%
C/Assets
3.52%
3.43%
3.52%
3.24%
3.39%
3.29%
3.10%
2.81%
2.87%
2.96%
2.96%
2.74%
Pre-Prov ision ROA
1.66%
1.63%
2.33%
1.68%
3.98%
2.09%
1.60%
1.76%
1.76%
1.78%
1.44%
1.76%
LLP/Loans
-0 74% -0.74%
-0 68% -0.68%
-0 92% -0.92%
-0 36% -0.36%
-0 94% -0.94%
-1 04% -1.04%
-0 52% -0.52%
-0 82% -0.82%
-0 53% -0.53%
-0 49% -0.49%
-0 57% -0.57%
-0 60% -0.60%
Loan/Assets
63.64% 63.65%
63.98%
63.75%
64.06%
63.51%
60.28%
57.46%
58.73%
61.78%
63.27%
64.04%
Other Income/Assets
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Operating ROA
1.19%
1.20%
1.74%
1.44%
3.37%
1.43%
1.29%
1.29%
1.45%
1.48%
1.08%
1.37%
Pre-Tax ROA
1.19%
1.20%
1.74%
1.44%
3.37%
1.43%
1.29%
1.29%
1.45%
1.48%
1.08%
1.37%
Tax Rate
-13.0%
-11.5%
-7.1%
-9.1%
-4.0%
-10.2%
-11.1%
-13.9%
-9.1%
-9.3%
-12.5%
-12.8%
Minorities & Outside Int.
-0.01%
-0.01%
0.00%
-0.01%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
-0.01%
Core ROA
1.03%
1.05%
1.61%
1.31%
3.23%
1.28%
1.14%
1.11%
1.32%
1.34%
0.94%
1.19%
Core RoRWA
1.38%
1.41%
2.15%
1.74%
4.19%
1.72%
1.73%
1.75%
2.00%
1.90%
1.29%
1.62%
Equity /Assets
8 34% 8.34%
8 48% 8.48%
10 42% 10.42%
12 22% 12.22%
12 84% 12.84%
12 61% 12.61%
10 95% 10.95%
9 91% 9.91%
9 61% 9.61%
9 71% 9.71%
9 55% 9.55%
9 42% 9.42%
Core ROE
12.3%
12.4%
15.5%
10.7%
25.2%
10.1%
10.4%
11.2%
13.7%
13.8%
9.8%
12.7%
Source: Company data, J.P. Morgan estimates.
135
East West banking Corp (EW) EW (UW): Capital call and negative revisions in the offing CET1 continues to remain lowest amongst the peers (10.9%) which can trigger a potential
capital call Niche focus on consumer segment drove above industry NIMs historically, but higher growth
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
in corporate loans to limit NIM improvement Cost controls will be key to break low RoE/capital call cycle; M&A poses key upside risk We use a two-stage DDM to arrive at our Jun-15 PT of Php27. Key assumptions are a CoE of
11.7%, RoE of 12.7% and a terminal growth rate of 7.5%. Key upside risks to our view include slower-than-expected l th t d shift hift iin lloan mix, i resilient ili t NIM NIMs, ffaster t iimprovementt iin cost/asset t/ t ratios ti and a meaningful decline in provisions. A decline in bond yields would also provide a boost to the bank’s earnings. NIM – Way above industry average
High Cost/Assets limiting upside in RoE 10.0
9.0 8.0
8.0
7.0
6.0
6.0 5.0
4.0
4.0
2.0
3.0 2011
2012
2013 EW
2014E
2015E
2011
2016E
2012
2013 EW
Average
Source: Company data, J.P. Morgan estimates.
2014E Average
Source: Company data, J.P. Morgan estimates.
136
2015E
2016E
EW: Annual Income Statement Income Statement (Php MM)
2011 Interest Income
LIQUIDITY POSES GROWTH CHALLENGES
2013
2014E
2015E
2016E
6 763 6,763
7 816 7,816
9 856 9,856
11 648 11,648
14 499 14,499
17 528 17,528
(1,850)
(1,728)
(1,463)
(1,564)
(2,257)
(3,225)
Net Interest Incom e
4,913
6,088
8,393
10,084
12,242
14,303
Non-Interest Incom e
2,390
3,696
4,772
4,901
5,835
6,953
Net Fee income
1,537
1,860
2,528
3,161
3,793
4,551
Trading income
632
1,488
1,699
1,468
1,689
1,942
Other operating income
222
347
545
272
354
460
7,304
9,784
13,165
14,985
18,078
21,256
Costs
(4,462)
(6,260)
(7,793)
(8,822)
(10,116)
(11,330)
PPOP
2,842
3,523
5,372
6,163
7,962
9,927
(1,531)
(3,098)
(3,142)
(4,394)
(6,075)
1,992 ,99
2,274 ,
3,021 3,0
3,568
3,852 3,85
Interest Ex pense
ASEA AN Bank ks
2012
Total Revenues
Loan loss prov isions Pre-Tax e a Tax MI & EO Core Attributable profit Preference Div idend Attributable Profits
(732) 2,110 , 0 (379)
(176)
(219)
(544)
(642)
(693)
0
1
0
0
0
0
1,731
1,817
2,056
2,477
2,926
3,159
-
-
-
-
-
1,817
2,056
2,477
2,926
3,159
(270) 1,461
Source: Company data, J.P. Morgan estimates.
137
EW: Annual DuPont Analysis ROE breakdown
2011
2012
2013
2014E
2015E
2016E
NIM (% of avg. avg IEA)
6 58% 6.58%
7 08% 7.08%
8 40% 8.40%
7 94% 7.94%
7 77% 7.77%
7 46% 7.46%
IEA/Assets
77.7%
79.1%
75.8%
79.1%
79.9%
80.7%
Margins (% of av g. Assets)
5.12%
5.60%
6.37%
6.28%
6.21%
6.02%
32.73% 37.78%
36.25%
32.71%
32.28%
32.71%
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Non-IR contribution g. Assets Non-IR/Av g
2.49%
3.40%
3.62%
3.05%
2.96%
2.92%
Rev enue/Assets
7.61%
9.00%
9.98%
9.33%
9.17%
8.94%
Cost/Income
61.1%
64.0%
59.2%
58.9%
56.0%
53.3%
C/Assets
4.65%
5.76%
5.91%
5.49%
5.13%
4.76%
Pre-Provision ROA
2.96%
3.24%
4.07%
3.84%
4.04%
4.17%
LLP/Loans
-1.43%
-2.44%
-3.60%
-2.87%
-3.23%
-3.56%
Loan/Assets
53.33% 57.75%
65.34%
68.08%
69.07%
71.78%
Other Income/Assets
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Operating ROA
2.20%
1.83%
1.72%
1.88%
1.81%
1.62%
Pre-Tax ROA
2.20%
1.83%
1.72%
1.88%
1.81%
1.62%
-18.0%
-8.8%
-9.6%
-18.0%
-18.0%
-18.0%
Core ROA
1.52%
1.67%
1.56%
1.54%
1.48%
1.33%
Core RoRWA
1.92%
2.03%
1.83%
1.79%
1.71%
1.53%
E it /A Equity /Assets t
8 55% 11.74% 8.55% 11 74%
13 91% 13.91%
12 84% 12.84%
11 84% 11.84%
11 09% 11.09%
Core ROE
17.8%
11.2%
12.0%
12.5%
12.0%
Tax Rate
14.2%
Source: Company data, J.P. Morgan estimates.
138
EW: Quarterly Income Statement Income Statement (Php MM)
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
1,852
1,816
1,957
2,191
2,331
2,391
2,526
2,608
2,669
2,808
2,974
3,197
(534)
(374)
(400)
(420)
(449)
(374)
(325)
(316)
(342)
(352)
(393)
(478)
1,317
1,442
1,558
1,771
1,882
2,017
2,201
2,292
2,328
2,456
2,581
2,719
Non Interest Income Non-Interest
855
833
1 214 1,214
794
1 728 1,728
1 434 1,434
743
867
1 121 1,121
1 240 1,240
1 243 1,243
1 297 1,297
Net Fee income
404
398
493
566
572
620
645
692
749
754
815
843
Trading income
341
363
658
125
1,077
487
26
110
321
429
348
370
Other operating p g income
110
71
63
103
79
328
72
65
51
57
80
84
Total Revenues
2,172
2,274
2,772
2,565
3,610
3,451
2,944
3,159
3,449
3,696
3,824
4,016
Costs
(1,371) (1,385) (1,792) (1,713) (2,013) (2,167) (1,782) (1,830) (2,134) (2,221) (2,199) (2,268)
Interest Income Interest Ex pense
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Net Interest Income
2Q14 3Q14E 4Q14E
PPOP
800
890
980
853
1,597
1,284
1,162
1,329
1,315
1,476
1,624
1,748
Loan loss prov isions
(308)
(374)
(543)
(305)
(904)
(729)
(676)
(788)
(741)
(766)
(790)
(846)
Pre-Tax
492
515
438
547
693
555
486
540
574
710
835
902
Tax
(32)
(65)
9
(87)
42
(14)
(30)
(216)
(118)
(119)
(146)
(160)
0
0
(2)
2
3
1
2
(5)
(0)
0
461
450
444
462
738
541
458
319
456
591
MI and EO Attributable Profit
Source: Company data, J.P. Morgan estimates.
139
689
0 742
Metropolitan Bank & Trust (MBT) MBT (N): Good turnaround in last five years, but limited upside from current levels Treasury income of Php1.1bn in 1H14 lagging FY guidance of Php6-8bn Lower risk of M&A versus other large domestic banks
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Capital call a risk but bank is guiding for no equity raising for at least a year Low LDR of 60% and CASA ratio of 51% should provide enough opportunities to lever up We use a two-stage DDM to arrive at our Jun-15 PT of Php85. Key assumptions are CoE of
10.5%, RoE of 13.0% and a terminal growth rate of 6.5%. Key upside risks to our view include high treasury income, better than expected NIM, and higher than expected loan growth. Downside risks include slower loan growth, a capital call, and NIM deterioration. Trading income (LHS) contribution as % of revenue (RHS)
Loan growth slowing on sector wide concerns 25 0% 25.0%
16 000 16,000
20.0%
12,000
25 0% 25.0% 20.0% 15.0%
15.0%
8,000 10.0% %
10.0% 4,000
5.0%
5.0% -
0.0% 2009
0.0% 2009
2010
2011
2012
Source: Company data, J.P. Morgan estimates.
2013
2014E
2015E
2016E
2010
2011 Trading Income
Source: Company data
140
2012
2013
% of Revenues
1H14
MBT: Annual Income Statement Income Statement (Php MM)
Interest Income
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Interest Ex pense
2008
2009
2010
2011
2012
2013
2014E
2015E
2016E
41,714
43,715
41,464
45,068
45,016
49,892
59,651
70,259
80,872
(15,074)
(15,631)
(18,645) (17,036)
(14,162) (11,623) (13,254) (15,856) (18,604)
Net Interest Incom e
23,069
26,679
26,390
29,437
30,854
38,269
46,396
54,403
62,268
Non-Interest Income
11,486
16,081
20,092
20,749
25,369
31,304
20,191
22,825
25,911
Net Fee income
6,783
6,499
6,853
7,666
8,123
8,640
9,072
10,161
11,380
Trading income
(504)
5,833
8,977
7,869
10,316
14,916
2,983
3,878
5,042
5,207
3,749
4,262
5,214
6,930
7,748
8,135
8,786
9,489
Total Revenues
34,555
42,760
46,482
50,186
56,223
69,573
66,587
77,228
88,179
Costs
(24,194) (25,842)
(27,818)
(30,700)
PPOP
10,361
16,918
18,664
19,486
22,848
Loan loss prov isions
(3,249)
(8,793)
(7,285)
(3,823)
8 104 8,104
9 044 9,044
12 997 12,997
(3,027)
(2,249)
(669)
(766)
Other operating income
Pre Tax Pre-Tax Tax MI & EO Non recurring items Pref Div idend Reported Profits
(484) 3,924
(484) 5,545
(33,375) (38,775) (40,876) (44,364) (48,800) 25,711
32,865
39,379
(4,478) (10,722)
(4,324)
(5,845)
(6,716)
15 663 15,663
18 370 18,370
20 076 20,076
21 387 21,387
27 020 27,020
32 663 32,663
(3,731)
(3,542)
(3,856)
(6,748)
(4,919)
(6,485)
(8,166)
(900)
(1,460)
(2,518)
(1,668)
(2,577)
(2,245)
(2,714)
3,403
10,828
2,800
-
-
(515) 7,851
370 (484) 10,547
Source: Company data, J.P. Morgan estimates.
141
(476) 14,923
30,798
(475) 22,013
(498) 16,193
(498) 17,792
(498) 21,285
MBT: Annual DuPont Analysis
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
ROE breakdown
Source: Company data, J.P. Morgan estimates.
142
MBT: Quarterly Income Statement
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Income Statement (Php MM)
Source: Company data, J.P. Morgan estimates.
143
MBT: Quarterly DuPont Analysis
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
ROE breakdown
Source: Company data, J.P. Morgan estimates.
144
Security Bank Corp (SECB) SECB (OW): Ongoing smooth transition from trading to commercial banking Created the best bond trading business in the country leading to 19.4% average RoE Razor-sharp focus on RoRWA of incremental growth
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Valuations remain reasonable (1.5x 2015 PBV) with above sector RoE We use a two-stage DDM to arrive at our Jun-15 PT of Php160. Key assumptions are a CoE
of 10.5%, RoE of 13.6% and a terminal growth rate of 6.5%. Key downside risks to our view include significantly slower-than-expected loan growth, weaker-than-expected asset yields, low trading gains, and sustained high costs due to branch expansion and rebranding expenses.
Above-industry RoE
Prudent cost management despite growth 4.0
26.0 24.0 22.0 20.0 18.0 16 0 16.0 14.0 12.0 10.0
3.5 3.0 25 2.5 2.0 1.5 2011
2012
2013
2014E
SECB
Average
Source: Company data, J.P. Morgan estimates.
2015E
2016E
2011
2012
2013 SECB
Source: Company data, J.P. Morgan estimates.
145
2014E Average
2015E
2016E
SECB: Annual Income Statement
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Income Statement (Php MM)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
2016E
Interest Income
8,358
7,970
8,956
8,916
9,493
8,926
10,696
11,573
12,331
16,071
18,718
21,324
Interest Ex pense
(4,305) (3,929) (4,362) (3,916) (3,489)
(2,827)
(3,137)
(3,476)
(3,947)
(3,984)
(5,011)
(6,154)
Net Interest Income
4,053
4,040
4,594
5,000
6,003
6,100
7,559
8,098
8,384
12,086
13,707
15,170
Non-Interest Income
1,916
2,580
3,341
1,609
1,896
6,751
4,122
5,929
3,928
4,271
3,610
4,295
-
-
-
-
-
-
-
-
-
-
-
-
Net Fee income
431
565
930
900
790
799
915
1,123
1,380
1,518
1,745
2,095
Trading income
1,269
1,699
1,861
151
719
5,547
2,540
4,243
1,903
2,108
1,122
1,347
216
315
550
557
387
406
666
563
645
645
742
854
Total Revenues
5,969
6,620
7,935
6,609
7,899
12,850
11,680
14,027
12,312
16,358
17,317
19,465
Costs
(3,279) (3,482) (3,712) (3,364) (3,911)
(4,710)
(4,346)
(5,972)
(6,752)
(7,491)
(8,415)
(9,425)
PPOP
2,690
3,139
4,223
3,245
3,988
8,140
7,335
8,054
5,561
8,866
8,902
10,040
(732)
(534)
(927)
(548)
(487)
(236)
(59)
(248)
(128)
(777)
(686)
(809)
(313)
(55)
(4)
(25)
(11)
156
(28)
79
2,013
2,291
3,242
2,693
3,476
7,893
7,432
7,779
(798)
(391)
(528)
(366)
(414)
(732)
(668)
(4)
2
(5)
(17)
(0)
(1)
1,211
1,901
2,709
2,310
3,062
7,160
-
p g income Other operating
Loan loss prov isions Other prov isions Pre-Tax Tax MI & EO Attributable Profits
-
Source: Company data, J.P. Morgan estimates.
146
-
-
-
5,512
8,090
8,216
9,231
(233)
(420)
(971)
(1,150)
(1,477)
(83)
(30)
(80)
(60)
(61)
(68)
6,682
7,516
5,012
7,059
7,005
7,686
SECB: Annual DuPont Analysis ROE breakdown
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014E
2015E
2016E
NIM (% of avg. avg IEA)
1 58% 1.58%
3 83% 3.83%
3 68% 3.68%
3 76% 3.76%
4 24% 4.24%
3 96% 3.96%
4 09% 4.09%
3 93% 3.93%
3 49% 3.49%
3 26% 3.26%
3 23% 3.23%
3 22% 3.22%
IEA/Assets
89.3%
92.7%
99.5%
99.9%
99.7%
98.5%
96.9%
86.8%
79.1%
98.2%
98.3%
98.4%
Margins (% of avg. A
1.41%
3.55%
3.66%
3.75%
4.23%
3.90%
3.96%
3.41%
2.76%
3.20%
3.18%
3.17%
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Non-IR contribution
32.10% 38.97% 42.10% 24.34% 24.00% 52.53% 35.29% 42.27% 31.91% 26.11% 20.85% 22.07%
Non-IR/Av g. Assets
0.67%
2.27%
2.66%
1.21%
1.33%
4.32%
2.16%
2.50%
1.29%
1.13%
0.84%
0.90%
Rev enue/Assets
2.08%
5.82%
6.32%
4.96%
5.56%
8.22%
6.12%
5.91%
4.06%
4.33%
4.01%
4.06%
Cost/Income
54.9%
52.6%
46.8%
50.9%
49.5%
36.7%
37.2%
42.6%
54.8%
45.8%
48.6%
48.4%
C/Assets
1.14%
3.06%
2.96%
2.52%
2.75%
3.01%
2.28%
2.52%
2.23%
1.98%
1.95%
1.97%
Pre-Prov ision ROA
0.94%
2.76%
3.36%
2.44%
2.81%
5.21%
3.84%
3.39%
1.83%
2.35%
2.06%
2.10%
LLP/Loans
-0.57% 0 57% -1.38% 1 38% -1.98% 1 98% -0.86% 0 86% -0.67% 0 67%
-0.31% 0 31%
-0.07% 0 07%
-0.23% 0 23%
-0.09% 0 09%
-0.43% 0 43%
-0.32% 0 32%
-0.32% 0 32%
Loan/Assets
44.83% 33.95% 37.36% 48.04% 51.38% 48.44% 45.05% 45.71% 47.80% 47.96% 49.00% 52.00%
Other Income/Assets
0.02% -0.28% -0.04%
0.00% -0.02%
-0.01%
0.08%
-0.01%
0.03%
0.00%
0.00%
0.00%
Operating ROA
0.68%
2.29%
2.63%
2.02%
2.46%
5.05%
3.89%
3.28%
1.82%
2.14%
1.90%
1.93%
Pre-Tax ROA
0.70%
2.01%
2.58%
2.02%
2.45%
5.05%
3.89%
3.28%
1.82%
2.14%
1.90%
1.93%
Tax Rate
-39.6% -17.1% -16.3% -13.6% -11.9%
-9.3%
-9.0%
-3.0%
-7.6%
-12.0%
-14.0%
-16.0%
Minorities & Outside Int. 0.00%
0.00%
0.00% -0.01%
0.00%
0.00%
-0.04%
-0.01%
-0.03%
-0.02%
-0.01%
-0.01%
Core ROA
0.42%
1.67%
2.16%
1.73%
2.16%
4.58%
3.50%
3.17%
1.65%
1.87%
1.62%
1.60%
Core RoRWA
0.38%
0.88%
3.54%
2.41%
2.81%
5.94%
4.61%
3.72%
2.00%
2.35%
1.93%
1.91%
Equity /Assets Core ROE
11.15% 10.19% 10.17% 3.8%
16.4%
21.2%
9.49% 10.72% 13.55% 14.42% 14.18% 12.79% 11.73% 11.74% 11.86% 18.3%
20.1%
33.8%
Source: Company data, J.P. Morgan estimates.
147
24.3%
22.3%
12.9%
16.0%
13.8%
13.5%
SECB: Quarterly Income Statement Income Statement (Php MM)
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2 792 2,792
2 856 2,856
2 855 2,855
3 070 3,070
2 949 2,949
3 012 3,012
3 215 3,215
3 156 3,156
3 703 3,703
(790)
(812)
(874)
(999)
(989)
(996) (1,004)
(958)
(926)
2,002
2,044
1,981
2,071
1,959
2,016
2,211
2,198
2,776
3,029
3,031
3,250
Non-Interest Income
333
3,917
780
900
1,098
216
2,118
496
790
1,822
813
847
Net Fee income
244
412
225
242
390
356
308
326
361
403
363
390
Trading income
(2)
3,360
432
453
577
(287)
1,625
(12)
312
1,253
270
274
Other operating income
91
145
123
204
131
147
185
182
117
166
180
183
Total Revenues
2 335 2,335
5 961 5,961
2 760 2,760
2 970 2,970
3 058 3,058
2 232 2,232
4 329 4,329
2 694 2,694
3 566 3,566
4 851 4,851
3 844 3,844
4 097 4,097
Costs
(1,144) (1,738) (1,526) (1,565) (1,656) (1,622) (1,703) (1,771) (1,714) (2,010) (1,863) (1,905)
PPOP
1,191
I t t IIncome Interest Interest Ex pense
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Net Interest Income
4,223
1,234
2Q14 3Q14E 4Q14E 4 000 4,000
4 038 4,038
4 331 4,331
(971) (1,007) (1,080)
1,406
1,402
610
2,625
923
1,853
2,841
1,980
2,193
(26)
(20)
(24)
(58)
(133)
(567)
(36)
(41)
-
-
-
79
-
-
-
-
Loan loss prov isions
-
(50)
-
(198)
Other prov isions
-
-
-
(28)
1,191
4,173
1,234
1,180
1,376
590
2,601
944
1,719
2,274
1,944
2,152
(94)
(214)
(52)
126
(151)
(80)
(113)
(77)
(279)
(75)
(292)
(325)
(0)
2
8
(39)
(8)
(43)
(7)
(21)
(13)
(13)
(15)
(20)
1,097
3,961
1,190
1,267
1,217
468
2,481
846
1,428
2,187
1,637
1,807
Pre-Tax Tax MI and EO Attributable Profit
Source: Company data, J.P. Morgan estimates.
148
SECB: Quarterly DuPont Analysis ROE breakdown
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
NIM (% of avg avg. IEA)
3 98% 3.98%
4 02% 4.02%
3 82% 3.82%
3 84% 3.84%
3 60% 3.60%
3 44% 3.44%
3 64% 3.64%
3 28% 3.28%
3 54% 3.54%
3 40% 3.40%
IEA/Assets
93.3%
90.2%
85.0%
84.3%
84.0%
84.8%
85.2%
85.9%
86.5%
93.4%
Margins (% of avg. As 3.72%
3.63%
3.25%
3.24%
3.02%
2.92%
3.10%
2.82%
3.06%
3.18%
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Non-IR contribution
14.25% 65.71% 28.25% 30.29% 35.92%
9.68% 48.93% 18.41% 22.15% 37.56%
Non-IR/Av g. Assets
0.62%
6.95%
1.28%
1.41%
1.70%
0.31%
2.97%
0.64%
0.87%
1.91%
Rev enue/Assets
4.33% 10.58%
4.53%
4.64%
4.72%
3.23%
6.08%
3.45%
3.94%
5.09%
Cost/Income
49.0%
29.1%
55.3%
52.7%
54.1%
72.6%
39.3%
65.7%
48.1%
41.4%
C/Assets
2.12%
3.08%
2.50%
2.45%
2.56%
2.35%
2.39%
2.27%
1.89%
2.11%
Pre-Prov ision ROA
2.21%
7.49%
2.02%
2.20%
2.16%
0.88%
3.69%
1.18%
2.04%
2.98%
LLP/Loans
0 00% 0.00%
-0.19% 0 19%
0 00% 0.00%
-0.68% 0 68%
-0.09% 0 09%
-0.06% 0 06%
-0.07% 0 07%
-0.15% 0 15%
-0.32% 0 32%
-1.31% 1 31%
Loan/Assets
45.43% 47.49% 46.00% 45.65% 47.18% 46.74% 49.88% 50.65% 46.50% 45.36%
Other Income/Assets
0.00%
0.00%
0.00%
-0.04%
0.00%
0.00%
0.00%
0.10%
0.00%
0.00%
Operating ROA
2.21%
7.41%
2.02%
1.89%
2.12%
0.85%
3.65%
1.11%
1.90%
2.39%
Pre-Tax ROA
2.21%
7.41%
2.02%
1.84%
2.12%
0.85%
3.65%
1.21%
1.90%
2.39%
Tax Rate
-7.9%
-5.1%
-4.2%
10.7%
-11.0%
-13.5%
-4.3%
-8.2%
-16.2%
-3.3%
Minorities & Outside Int.
0.00%
0.00%
0.01%
-0.06%
-0.01%
-0.06%
-0.01%
-0.03%
-0.01%
-0.01%
Core ROA
2.04%
7.03%
1.95%
1.98%
1.88%
0.68%
3.48%
1.08%
1.58%
2.29%
Core RoRWA
2.48%
7.96%
2.26%
2.23%
2.15%
0.86%
4.47%
1.41%
2.03%
2.79%
Equity /Assets Core ROE
14.37% 14.74% 14.57% 14.26% 14.47% 13.79% 13.80% 13.03% 11.43% 11.25% 14.2%
47.7%
13.4%
13.9%
13.0%
Source: Company data, J.P. Morgan estimates.
149
4.9%
25.2%
8.3%
13.8%
20.4%
Philippine National Bank (PNB) PNB (N): Low RoE limits upside, but limited downside on M&A probability Slower-than-expected core income growth in 1H14 Turnaround to take time, with RoE expected to trend below 10% until 2016E
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Legislation allowing entry of foreign banks to provide a floor on bid-spec We use a two-stage DDM to arrive at our Jun-15 PT of Php85. Key assumptions are a CoE of
10.5%, RoE of 9.7%, and no terminal growth. Key upside risks to our view include gain on sale of foreclosed assets and bid-spec. Key downside risks include slower-than-expected loan growth and higher cost growth. Industry level risk includes tighter policy stance, which will i impact t PNB as it its ffourth th largest l t bank b k iin th the country. t
Upside risks to the stock if bank is able to close the NPL sale transaction
Increase Tier 1 capital by 100 bp
Funding costs to reduce by 50 bp
Management focus to shift to business growth
Book a profit from the transaction
Source: Company data, J.P. Morgan estimates.
150
PNB: Annual Income Statement
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Income Statement (Php MM)
2008
2009
2010
2011
2012
2013
2014E
2015E
2016E
I t t Income Interest I
11 659 11,659
12 970 12,970
12 331 12,331
12 488 12,488
11 361 11,361
18 480 18,480
20 853 20,853
25 118 25,118
29 524 29,524
Interest Ex pense
(5,040)
(5,091)
(4,772)
(5,269)
(4,385)
(4,731)
(3,732)
(4,347)
(5,199)
Net Interest Income
6,619
7,879
7,559
7,219
6,976
13,749
17,121
20,772
24,324
Non-Interest Income
5,545
7,321
9,817
9,424
9,628
10,816
10,014
10,696
13,080
Net Fee income
2,353
2,260
2,125
2,137
1,876
2,434
2,678
3,347
4,184
Trading income
1,623
3,022
3,988
4,789
6,539
5,854
3,545
4,316
5,257
Other operating income
1,569
2,040
3,705
2,499
1,213
2,527
3,791
3,033
3,640
T t l Revenues Total R
12 164 12,164
15 200 15,200
17 377 17,377
16 643 16,643
16 603 16,603
24 565 24,565
27 136 27,136
31 468 31,468
37 405 37,405
Costs
(9,233)
(10,726)
(10,020)
(10,137)
(10,136)
(17,338)
(18,889)
(20,600)
(22,488)
PPOP
2,930
4,474
7,356
6,506
6,467
7,227
8,247
10,868
14,917
(964)
(1,506)
(2,400)
(1,025)
(824)
(834)
(1,312)
(1,563)
(1,870)
1,964
2,980
4,957
5,481
5,643
6,393
6,935
9,305
13,047
(844)
(780)
(924)
(849)
(925)
(1,171)
(1,803)
(2,326)
(3,262)
(12)
(14)
(467)
(8)
(10)
(98)
(107)
(143)
(201)
1 108 1,108
2 186 2,186
3 566 3,566
4 623 4,623
4 709 4,709
5 124 5,124
5 633 5,633
6 836 6,836
9 585 9,585
Loan loss prov isions Pre-Tax Tax MI & EO Attributable Profit
Source: Company data, J.P. Morgan estimates.
151
PNB: Annual DuPont Analysis
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
ROE breakdown
2008
2009
2010
2011
2012
2013
2014E
2015E
2016E
NIM (% of avg. IEA)
3.04%
3.26%
3.60%
2.91%
2.61%
3.41%
3.26%
3.75%
4.07%
IEA/Assets
84.4%
86.6%
88.3%
80.8%
83.3%
85.1%
83.6%
83.6%
83.5%
Margins (% of av g. Asse
2.57%
2.82%
3.18%
2.35%
2.17%
2.90%
2.73%
3.14%
3.40%
Non-IR contribution
45.58%
48.17%
56.50%
56.63%
57.99%
44.03%
36.90%
33.99%
34.97%
Non-IR/Av g. Assets
2.15%
2.62%
3.35%
3.07%
3.00%
2.28%
1.59%
1.61%
1.83%
Rev enue/Assets
4.72%
5.44%
6.53%
5.42%
5.17%
5.18%
4.32%
4.75%
5.23%
Cost/Income
75.9%
70.6%
57.7%
60.9%
61.0%
70.6%
69.6%
65.5%
60.1%
C/Assets
3.58%
3.84%
3.77%
3.30%
3.16%
3.66%
3.01%
3.11%
3.14%
Pre-Provision ROA
1.14%
1.60%
2.77%
2.12%
2.01%
1.52%
1.31%
1.64%
2.08%
LLP/Loans
-00.95% 95%
-11.32% 32%
-22.03% 03%
-00.78% 78%
-00.56% 56%
-00.38% 38%
-00.43% 43%
-00.43% 43%
-00.44% 44%
Loan/Assets
39.47%
40.87%
40.47%
42.84%
46.09%
46.68%
48.93%
54.25%
59.98%
Other Income/Assets
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Operating ROA
0.76%
1.06%
1.95%
1.78%
1.76%
1.35%
1.10%
1.40%
1.82%
Pre-Tax ROA
0.76%
1.07%
1.95%
1.78%
1.76%
1.35%
1.10%
1.40%
1.82%
Tax Rate
-43.0%
-26.2%
-18.6%
-15.5%
-16.4%
-18.3%
-26.0%
-25.0%
-25.0%
Minorities & Outside Int.
0.00%
-0.01%
-0.16%
0.00%
0.00%
-0.02%
-0.02%
-0.02%
-0.03%
Core ROA
0.43%
0.78%
1.42%
1.51%
1.47%
1.08%
0.80%
1.03%
1.34%
Core RoRWA
0.59%
1.07%
1.98%
2.18%
2.24%
1.74%
1.27%
1.59%
2.06%
Equity /Assets
11 51% 11.51%
10 75% 10.75%
10 96% 10.96%
11 03% 11.03%
11 35% 11.35%
12 58% 12.58%
14 20% 14.20%
15 14% 15.14%
14 93% 14.93%
3.7%
7.3%
13.0%
13.6%
12.9%
8.6%
5.6%
6.8%
9.0%
Core ROE
Source: Company data, J.P. Morgan estimates.
152
PNB: Quarterly Income Statement
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Income Statement (Php MM)
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
Interest Income
2,944
2,870
2,815
2,731
4,099
4,718
4,716
4,947
5,360
4,825
Interest Ex pense
(1,081) (1,025) (1,095) (1,183) (1,477) (1,301) (1,039)
(915)
(914)
(886)
Net Interest Income
1,863
1,845
1,720
1,548
2,622
3,417
3,676
4,033
4,446
3,939
4,187
4,548
Non Interest Income Non-Interest
2 963 2,963
1 879 1,879
2 722 2,722
2 063 2,063
4 974 4,974
3 523 3,523
1 953 1,953
365
2 112 2,112
3 027 3,027
2 378 2,378
2 497 2,497
Net Fee income
466
469
461
480
610
589
566
670
638
647
667
726
Trading income
2,179
1,221
1,895
1,243
3,313
2,201
345
(5)
581
1,383
714
868
318
188
366
340
1,051
733
1,043
((300))
893
997
997
903
Total Revenues
4,827
3,724
4,442
3,611
7,597
6,940
5,630
4,398
6,559
6,967
6,565
7,045
Costs
(2,992) (2,349) (2,042) (2,754) (3,915) (3,983) (4,251)
PPOP
1,835
1,375
2,400
857
3,682
2,957
1,379
(791)
2,069
2,352
1,989
1,838
(359)
(151)
(147)
(166)
(180)
(230)
(324)
(99)
(291)
(641)
(182)
(198)
1,476
1,224
2,253
691
3,501
2,727
1,054
(890)
1,778
1,711
1,807
1,639
(238)
(172)
(260)
(255)
(662)
(263)
(368)
122
(435)
(452)
(479)
(437)
(2)
(3)
(248)
242
(12)
(24)
(22)
(40)
(3)
(53)
(22)
(29)
1,235
1,049
1,746
678
2,827
2,440
665
(808)
1,340
1,814
1,306
1,173
Other operating p g income
Loan loss prov isions Pre-Tax Tax MI and EO Attributable Profit
Source: Company data, J.P. Morgan estimates.
153
2Q14 3Q14E 4Q14E 5,119
5,548
(932) (1,000)
(5,189) (4,490) (4,615) (4,576) (5,207)
PNB: Quarterly DuPont Analysis ROE breakdown
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14E
4Q14E
NIM (% of avg. IEA)
3.00%
3.00%
2.40%
2.04%
2.80%
2.81%
3.01%
3.23%
3.53%
3.13%
3.25%
3.40%
IEA/Assets
80.7%
80.3%
91.3%
93.2%
85.4%
87.6%
83.6%
81.6%
83.0%
82.9%
84.6%
85.5%
Margins (% of av g. Ass 2.42%
2.41%
2.19%
1.90%
2.39%
2.46%
2.52%
2.64%
2.93%
2.60%
2.75%
2.90%
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Non-IR contribution
61.40% 50.45% 61.28% 57.14% 65.48% 50.76% 34.70%
8.31% 32.21% 43.46% 36.22% 35.44%
Non-IR/Av g. Assets
3.82%
2.44%
3.47%
2.54%
4.53%
2.54%
1.34%
0.24%
1.37%
2.00%
1.56%
1.59%
Rev enue/Assets
6.23%
4.84%
5.66%
4.44%
6.92%
5.00%
3.85%
2.88%
4.27%
4.59%
4.32%
4.50%
Cost/Income
62.0%
63.1%
46.0%
76.3%
51.5%
57.4%
75.5%
118.0%
68.5%
66.2%
69.7%
73.9%
C/Assets
3.86%
3.06%
2.60%
3.38%
3.57%
2.87%
2.91%
3.39%
2.92%
3.04%
3.01%
3.33%
Pre-Prov ision ROA
2.37%
1.79%
3.06%
1.05%
3.36%
2.13%
0.94%
-0.52%
1.35%
1.55%
1.31%
1.17%
LLP/Loans
-1 1.02% 02% -0 0.42% 42%
-0 0.41% 41%
-0 0.44% 44%
-0 0.35% 35% -0 0.36% 36% -0 0.50% 50%
-0 0.14% 14%
Loan/Assets
45.62% 46.69% 45.73% 45.97% 46.73% 45.52% 44.83%
-0 0.41% 41% -0 0.89% 89% -0 0.24% 24% -0 0.25% 25%
45.66% 46.27% 47.35% 48.93% 50.41%
Other Income/Assets
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Operating ROA
1.90%
1.59%
2.87%
0.85%
3.19%
1.96%
0.72%
-0.58%
1.16%
1.13%
1.19%
1.05%
Pre-Tax ROA
1.90%
1.59%
2.87%
0.85%
3.19%
1.96%
0.72%
-0.58%
1.16%
1.13%
1.19%
1.05%
Tax Rate
-16.1% -14.1%
-11.5%
-37.0%
-18.9%
-9.6% -34.9%
-13.7%
-24.5% -26.4% -26.5% -26.7%
Minorities & Outside Int.
0.00%
0.00%
-0.32%
0.30%
-0.01% -0.02% -0.01%
-0.03%
0.00% -0.03% -0.01% -0.02%
Core ROA
1.59%
1.36%
2.22%
0.83%
2.58%
1.76%
0.46%
-0.53%
0.87%
0.79%
0.86%
0.75%
Core RoRWA
2.23%
1.81%
2.76%
1.11%
3.81%
2.59%
0.69%
-0.83%
1.42%
1.26%
1.32%
1.15%
Equity /Assets Core ROE
11 99% 13.04% 11.99% 13 04% 12.52% 12 52% 11.79% 11 79% 13.90% 13 90% 14.75% 14 75% 13.81% 13 81% 13.3%
10.5%
17.8%
7.1%
18.5%
11.9%
Source: Company data, J.P. Morgan estimates.
154
3.3%
13 24% 13.45% 13.24% 13 45% 14.08% 14 08% 14.27% 14 27% 14.76% 14 76% -4.0%
6.5%
5.6%
6.0%
5.1%
China Banking Corp (CHIB) CHIB (OW): Legacy of relationships, risk management, and encouraging inorganic growth Multi-generational relationships with the Filipino-Chinese community One of the most prudent banks in the country with credit costs of 60bp vs. 123bp for the
sector over the last 10 years
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Lowest risk profile in PH according to our ASEAN Banks Risk Framework Planters acquisition proving to be value-accretive We use a 2-stage DDM to set our Jun-15 PT of Php58. Key risks to our view include slower
rationalization of PDB funding costs, possible trading losses on the back of higher bond yields, and a pickup in credit costs from growth in newer segments. CHIB Loan Mix 100% 90%
14%
16%
CHIB consistently below industry credit costs 15%
14%
12%
11%
12%
14%
80%
(2.00)
70% 60% 50% 40%
(2.50)
(1.50) 86%
84%
85%
86%
88%
89%
88%
86%
30% 20%
(1.00) (0.50)
10% 0% 2006
2007
2008
2009
Corporate and Commercial
Source: Company data, J.P. Morgan estimates.
2010
2011
2012
-
2013
2007
Consumer
2008
2009
2010 CHIB
2011
Source: Company data, J.P. Morgan estimates.
155
2012
2013 2014E Industry
2015E
2016E
CHIB: Annual Income Statement
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Income Statement (Php MM)
2008
2009
2010
2011
2012
2013
2014E
2015E
2016E
Interest Income
12,405
13,410
13,213
12,677
13,151
14,081
20,025
23,519
26,849
Interest Ex pense
(5,881)
(5,174)
(4,580)
(4,125)
(5,089)
(4,145)
(5,186)
(6,389)
(7,547)
Net Interest Income
6,524
8,236
8,633
8,552
8,062
9,936
14,839
17,130
19,301
Non-Interest Income
2,143
4,104
4,686
4,192
5,897
5,161
3,999
4,614
5,180
Net Fee income
1,476
1,454
1,587
1,503
1,602
1,577
1,577
1,861
2,047
Trading income
97
1,996
2,296
1,576
3,175
1,815
741
871
1,025
569
654
803
1 114 1,114
1 120 1,120
1 769 1,769
1 681 1,681
1 882 1,882
2 108 2,108
Total Revenues
8,667
12,341
13,319
12,744
13,960
15,097
18,838
21,744
24,481
Costs
(5,178)
(6,948)
(7,129)
(7,032)
(8,267)
(8,908) (11,870) (12,820) (13,845)
PPOP
3 489 3,489
5 393 5,393
6 190 6,190
5 711 5,711
5 693 5,693
6 189 6,189
6 967 6,967
8 924 8,924
10 636 10,636
(307)
(792)
(496)
(155)
(237)
(414)
(742)
(885)
(1,059)
3,182
4,600
5,695
5,556
5,456
5,775
6,226
8,040
9,577
((265))
((498))
((691))
((547))
((422))
((675))
((1,307) , )
((1,608) , )
((1,915) , )
2,915
4,100
5,003
5,009
5,049
5,103
4,922
6,436
7,667
Oth operating Other ti iincome
Loan loss prov isions Pre-Tax Tax Reported Profits
Source: Company data, J.P. Morgan estimates.
156
CHIB: Annual DuPont Analysis
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
ROE breakdown
2008
2009
2010
2011
2012
2013
2014E
2015E
2016E
NIM (% of avg avg. IEA)
3 82% 3.82%
4 16% 4.16%
3 97% 3.97%
3 76% 3.76%
2 90% 2.90%
2 98% 2.98%
3 53% 3.53%
3 70% 3.70%
3 77% 3.77%
IEA/Assets
88.8%
89.5%
88.4%
87.6%
94.9%
90.5%
94.7%
93.2%
93.3%
Margins (% of avg. As
3.40%
3.72%
3.51%
3.29%
2.75%
2.70%
3.35%
3.45%
3.52%
Non-IR contribution
24.72%
33.26%
35.18%
32.89%
42.25%
34.19%
21.23%
21.22%
21.16%
Non-IR/Av g. Assets
1.12%
1.85%
1.91%
1.61%
2.01%
1.40%
0.90%
0.93%
0.94%
Rev enue/Assets
4.51%
5.58%
5.42%
4.91%
4.77%
4.09%
4.25%
4.37%
4.46%
Cost/Income
59.7%
56.3%
53.5%
55.2%
59.2%
59.0%
63.0%
59.0%
56.6%
C/Assets
2.70%
3.14%
2.90%
2.71%
2.82%
2.42%
2.68%
2.58%
2.52%
Pre-Prov ision ROA
1.82%
2.44%
2.52%
2.20%
1.94%
1.68%
1.57%
1.80%
1.94%
LLP/L LLP/Loans
-0.29% 0 29%
-0.67% 06 %
-0.41% 0 41%
-0.11% 0 11%
-0.14% 0 14%
-0.20% 0 20%
-0.28% 0 28%
-0.27% 02 %
-0.27% 02 %
Loan/Assets
55.16%
53.14%
49.32%
53.46%
59.70%
57.52%
59.09%
65.45%
70.89%
Other Income/Assets
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Operating ROA
1.66%
2.08%
2.32%
2.14%
1.86%
1.57%
1.40%
1.62%
1.75%
Pre-Tax Pre Tax ROA
1 66% 1.66%
2 08% 2.08%
2 32% 2.32%
2 14% 2.14%
1 86% 1.86%
1 57% 1.57%
1 40% 1.40%
1 62% 1.62%
1 75% 1.75%
Tax Rate
-8.3%
-10.8%
-12.1%
-9.9%
-7.7%
-11.7%
-21.0%
-20.0%
-20.0%
Minorities & Outside Int.
0.00%
0.00%
0.00%
0.00%
0.01%
0.00%
0.00%
0.00%
0.00%
Core ROA
1.52%
1.85%
2.04%
1.93%
1.72%
1.38%
1.11%
1.29%
1.40%
Core RoRWA
NA
2.10%
2.51%
2.59%
2.33%
2.04%
1.52%
1.62%
1.75%
13.64%
12.68%
13.38%
14.38%
13.92%
11.89%
11.44%
11.62%
11.24%
11.1%
14.6%
15.2%
13.4%
12.4%
11.6%
9.7%
11.1%
12.4%
Equity /Assets Core ROE
Source: Company data, J.P. Morgan estimates.
157
CHIB: Quarterly Income Statement
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Income Statement (Php MM)
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14E
4Q14E
Interest Income
3,138
3,127
3,415
3,471
3,447
3,316
3,554
3,763
3,905
5,149
5,393
5,578
Interest Expense
(1,171) (1,136) (1,348) (1,434) (1,332) (1,002)
(900)
(911)
Net Interest Income
1,967
1,991
2,067
2,037
2,115
2,314
2,655
2,852
3,013
3,775
3,940
4,110
Non-Interest Income
1,496
913
1,287
2,202
2,331
1,136
916
778
1,005
958
1,003
1,033
Net Fee income
254
231
437
680
257
263
460
597
331
417
405
424
Trading income
970
378
562
1,266
1,531
329
40
(85)
246
175
153
167
Other operating income
272
304
288
256
543
544
416
266
428
366
445
442
Total Revenues
3,462
2,904
3,354
4,239
4,446
3,450
3,570
3,630
4,019
4,733
4,943
5,143
Costs
(2,084) (1,811) (2,067) (2,305) (2,419) (2,066) (2,227) (2,197) (2,519) (3,171) (3,125) (3,055)
PPOP
1 379 1,379
1 092 1,092
1 287 1,287
1 934 1,934
2 027 2,027
1 384 1,384
1 344 1,344
1 434 1,434
1 500 1,500
1 562 1,562
1 818 1,818
2 087 2,087
(100)
(41)
(13)
(83)
(71)
(39)
(204)
(100)
(52)
(135)
(281)
(275)
1,279
1,051
1,275
1,851
1,956
1,346
1,139
1,334
1,448
1,428
1,537
1,813
(174)
(127)
(160)
39
(163)
(183)
(180)
(150)
(288)
(384)
(292)
(343)
1,104
927
1,117
1,901
1,797
1,154
963
1,190
1,163
1,063
1,245
1,451
Loan loss provisions Pre-Tax Tax Reported Profits
Source: Company data, J.P. Morgan estimates.
158
(891) (1,374) (1,452) (1,468)
CHIB: Quarterly DuPont Analysis ROE breakdown
1Q12
2Q12
NIM (% of avg. avg IEA)
3 15% 3.15%
2 99% 2.99%
2 80% 2.80%
2 66% 2.66%
2 74% 2.74%
2 98% 2.98%
3 13% 3.13%
3 55% 3.55%
3 13% 3.13%
3 49% 3.49%
3 48% 3.48%
3 60% 3.60%
IEA/Assets
94.0%
95.8%
97.9%
96.5%
95.5%
91.6%
96.2%
83.1%
95.0%
100.1%
97.9%
97.1%
Margins (% of avg. Assets 2.96%
2.86%
2.74%
2.56%
2.62%
2.73%
3.01%
2.95%
2.97%
3.49%
3.41%
3.50%
43.20% 31.44%
38.37%
51.94%
52.43%
32.92%
25.65%
21.43%
25.01%
20.24%
20.28%
20.08%
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Non-IR contribution
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14E
4Q14E
Non-IR/Av gg. Assets
2.24%
1.31%
1.72%
2.77%
2.85%
1.34%
1.04%
0.81%
0.98%
0.89%
0.87%
0.88%
Rev enue/Assets
5.19%
4.15%
4.48%
5.33%
5.43%
4.08%
4.05%
3.76%
3.91%
4.38%
4.28%
4.38%
Cost/Income
60.2%
62.4%
61.6%
54.4%
54.4%
59.9%
62.4%
60.5%
62.7%
67.0%
63.2%
59.4%
C/Assets
3.12%
2.59%
2.76%
2.90%
2.95%
2.44%
2.53%
2.27%
2.45%
2.93%
2.70%
2.60%
Pre-Prov ision ROA
2.07%
1.56%
1.72%
2.43%
2.47%
1.64%
1.53%
1.48%
1.46%
1.44%
1.57%
1.78%
LLP/Loans
-0.26%
-0.10%
-0.03%
-0.17%
-0.15%
-0.08%
-0.40%
-0.18%
-0.09%
-0.21%
-0.41%
-0.38%
Loan/Assets
58.04% 59.23%
60.27%
60.43%
57.87%
55.49%
57.86%
57.12%
56.57%
58.92%
59.99%
61.61%
Other Income/Assets
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Operating ROA
1.92%
1.50%
1.70%
2.33%
2.39%
1.59%
1.29%
1.38%
1.41%
1.32%
1.33%
1.54%
P T ROA Pre-Tax
1 92% 1.92%
1 50% 1.50%
1 70% 1.70%
2 33% 2.33%
2 39% 2.39%
1 59% 1.59%
1 29% 1.29%
1 38% 1.38%
1 41% 1.41%
1 32% 1.32%
1 33% 1.33%
1 54% 1.54%
Tax Rate
-13.6%
-12.1%
-12.5%
2.1%
-8.3%
-13.6%
-15.8%
-11.2%
-19.9%
-26.9%
-19.0%
-18.9%
Core ROA
1.65%
1.33%
1.49%
2.39%
2.19%
1.36%
1.09%
1.23%
1.13%
0.98%
1.08%
1.23%
Core RoRWA
2.21%
1.82%
2.07%
3.34%
2.99%
1.93%
1.58%
1.81%
1.67%
1.39%
1.52%
1.63%
14 89% 14.24% 14.89% 14 24%
13 45% 13.45%
13 14% 13.14%
13 52% 13.52%
13 41% 13.41%
12 60% 12.60%
11 61% 11.61%
11 10% 11.10%
11 68% 11.68%
12 09% 12.09%
11 97% 11.97%
11.1%
18.2%
16.2%
10.2%
8.7%
10.6%
10.2%
8.4%
8.9%
10.3%
Equity /Assets Core ROE
11.1%
9.3%
Source: Company data, J.P. Morgan estimates.
159
Thailand - Investment Summary Thailand bank stocks are covered by Anne Jirajariyavech (+66 2684 2684 /
[email protected]) Loan growth and operating leverage should
drive multiple re-rating
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Mortgage and SME to lead the recovery
((resilient ili t d demand d and d seasonality). lit ) C Corporate t loans face competition from bond market. Auto HP is still struggling. Government spending needs good execution. At least, we have moved from a no functional government to a government However, deposit competition should pick up
and put a cap on NIM Drivers/catalysts: Di / t l t 1) lloan and d ffee iincome
growth, 2) contained credit cost pressure, 3) EPS upgrades, 4) better competition from SFIs Key K iissues/risks: / i k 1) potential t ti l rise i iin d depositit
competition, 2) negative political developments and delays in public spending & investments
Thailand Banks Valuation Company
Rating
Price
PE (x)
PB (x)
RoE (%)
(LC)
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
SCB
OW
190
11.6
10.5
2.27
2.00
2.9
3.4
21.1
20.3
KBANK
OW
225
11.4
10.2
2.09
1.79
1.6
1.8
19.8
18.9
KTB
OW
24
10.4
9.4
1.46
1.34
3.8
4.2
14.8
14.8
BBL
N
206
10.0
9.0
1.23
1.13
3.9
4.1
12.8
12.9
BAY
N
51
16.9
14.7
2.31
2.14
2.4
2.8
13.0
13.8
TISCO
N
44
7.5
6.5
1.37
1.22
5.5
5.5
19.3
18.8
TMB
UW
3
16.8
15.1
1.95
1.78
1.3
1.7
12.0
12.5
KKB
UW
42
9.7
9.2
0.97
0.94
7.2
7.8
10.2
10.4
TCAP
UW
35
8.2
8.3
0.88
0.83
4.3
4.5
11.2
10.4
12.0
10.8
1.87
1.68
2.9
3.3
16.3
16.1
Average
Source: Bloomberg and J.P.Morgan estimates. Price as of 28th August 2014.
EPS sensitivity y to every y 5ppt pp increase in loan growth g
10% 8%
8% 6% 4%
4%
4%
4%
3%
4%
SCB
BBL KBANK Sector KTB
5%
5%
TMB
KK
6%
6%
TCAP
BAY
2% 0%
Overall, O ll we stay t with ith our preference f for f
KBANK/SCB in the sector and KTB remains a valuation call
Div yield (%)
Source: Company reports and J.P.Morgan estimates
160
TISCO
Key catalysts Commercial banking system loan composition
13% 27%
7% 7%
Wholesale
Housing loans
Auto loans
Other consumption loans
Sources: Bank of Thailand and J.P.Morgan estimates
Auto loan as a % of total loans
Housing loans
10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4 0% 4.0% 3.0% 2.0% 1.0%
14% 12% 10% 8% 6% 4% 2% 0% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 1Q13 2Q13 3Q13 4Q13 1Q14
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
73%
H i loans Housing l % GDP Sources: Bank of Thailand and J.P.Morgan estimates
Sources: Bank of Thailand and J.P.Morgan estimates
161
8.0%
Economic Indicators Real GDP
Foreign exchange reserves
15.0%
200000
10.0%
4.2%
5.0%
160000
0.0%
120000
-5.0%
80000
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
-10.0%
40000
-15.0%
0 1993
Sources: Bloomberg and J.P.Morgan estimates
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
Sources: Bloomberg
Inflation trend
Thai baht-USD trend 51
8.0%
46
7.0%
41
6.0% 5.0%
36 32.5
31
3.3%
4.0% 3.0% 2.0%
26
2.6%
1.0%
21 1990
1992
1994
1996
1998
2000
Sources: Bloomberg and J.P.Morgan estimates
2002
2004
2006
2008
2010
2012 2014E
0.0% 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014E
Sources: Bloomberg and J.P.Morgan estimates
162
Bank of Ayudhya Pcl BAY (N): The stock lacks liquidity Sustained slowdown in used car market
Struggling gg g to improve p ROE to top p of industry y
P/B Bands
0.9x
Source: Bloomberg and J.P. Morgan estimates.
Source: Bloomberg and J.P. Morgan estimates.
163
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
0.5x
Jan-02
JJan-14
JJan-13
JJan-12
JJan-11
JJan-10
JJan-09
JJan-08
JJan-07
JJan-06
JJan-05
JJan-04
JJan-03
1x
1.1x
Jan-08
6x
1.6x
Jan-07
12x
2.0x 2.0x
Jan-06
15.6x 18x
50 45 40 35 30 25 20 15 10 5 0 Jan-05
23x
Jan-04
80 70 60 50 40 30 20 10 0 (10) (20) (30)
Jan-03
P/E Bands
JJan-02
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
High competition in consumer lending
Earnings expectations – BAY Key operating metrics Unit: Bt in millions
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Loan grow th L h NIM Non-NII contribution Cost/income Credit cost (bp) Effective tax rate NII Y/Y grow th Non-NII Y/Y grow th Opex Y/Y grow th PPOP Y/Y grow th Provision Y/Y grow th Operating p g profit p Y/Y grow th Exceptionals Pre-tax profit Y/Y grow th Income tax Minorities interest Net profit Y/Y grow th ROA Equity/assets ROE
2007 -2% 2% 2.80% 25% 65% 270 -3%
2008 24% 3.72% 21% 54% 154 22%
2009 8% 3.62% 28% 51% 175 18%
2010 7% 4.52% 32% 52% 197 29%
2011 11% 4.44% 31% 50% 178 40%
2012 15% 4.26% 34% 51% 147 23%
2013 14% 4.28% 34% 51% 189 22%
2014E 8% 4.29% 34% 50% 170 20%
2015E 8% 4.21% 34% 49% 170 20%
17,412 4% 5,915 8% (15,162) 25% 8,165 -19% (12,365) 9% ((4,200) , )
24,506 41% 6,363 8% (16,582) 9% 14,287 75% (7,790) -37% 6,497 , -255% (1,000) 5,497 -242% 1,199 1 4,299 -208% 0.61% 11.5% 5.2%
25,848 5% 10,130 59% (18,509) 12% 17,468 22% (10,216) 31% 7,252 , 12% 906 8,158 48% 1,504 2 6,657 55% 0.87% 11.8% 7.5%
34,638 34% 16,648 64% (26,796) 45% 24,490 40% (12,391) 21% 12,099 , 67% 251 12,350 51% 3,524 (23) 8,803 32% 1.07% 11.4% 9.2%
37,465 8% 17,052 2% (27,477) 3% 27,041 10% (12,214) -1% 14,827 , 23% 820 15,647 27% 6,310 (39) 9,298 6% 1.02% 10.8% 9.2%
39,953 7% 20,435 20% (30,798) 12% 29,590 9% (11,385) -7% 18,206 , 23% 800 19,006 21% 4,337 (43) 14,626 57% 1.45% 10.6% 13.6%
44,939 12% 22,808 12% (34,668) 13% 33,079 12% (16,826) 48% 16,253 , -11% 1,827 18,080 -5% 3,942 (119) 14,019 -4% 1.24% 10.5% 11.8%
50,039 11% 25,302 11% (37,715) 9% 37,625 14% (16,674) -1% 20,951 , 29% 0 20,951 16% 4,190 (137) 16,624 19% 1.36% 10.4% 13.0%
54,422 9% 28,647 13% (41,034) 9% 42,035 12% (17,934) 8% 24,101 , 15% 0 24,101 15% 4,820 (157) 19,123 15% 1.45% 10.5% 13.8%
340 (3,860) 124 (9) (3,992) -340% -0.61% 11.9% -6.4%
Source: Company reports and J.P. Morgan estimates.
164
Bangkok Bank Public Co Ltd BBL(N) Limited downside at current valuation Stock trading at a discount to the sector due to lagging performance.
LT upside p is being g limited by y weak business execution, lack of change, g traditional standing, g and
limited retail franchise.
P/E Bands
P/B Bands
350
350
15x
300 250 200
1.5x
250
1.1x1.3x
200
7x
150
18 1.8x
300
13x 11x 9.1x 9x
1.0x
150
100
0.8x
100
50
50
Source: Bloomberg and J.P. Morgan estimates. Source: Bloomberg and J.P. Morgan estimates.
165
JJan-14
JJan-13
JJan-12
JJan-11
JJan-10
JJan-09
JJan-08
JJan-07
JJan-06
JJan-05
JJan-04
JJan-02
JJan-03
0
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
0 Jan-02
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Financial performance continues to lag peers
Earnings expectations – BBL Key operating metrics Unit: Bt in million
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Loan grow th L h NIM Non-NII contribution Cost/income Credit cost (bp) Effective tax rate NII Y/Y grow th Non-NII Y/Y grow th Opex Y/Y grow th PPOP Y/Y grow th Provision Y/Y grow th Operating p g profit p Y/Y grow th Exceptionals Pre-tax profit Y/Y grow th Income tax Minorities interest Net profit Y/Y grow th ROA Equity/assets ROE
2007 8% 2.83% 29% 46% 56 32%
2008 13% 3.06% 28% 44% 59 31%
2009 -3% 3% 2.62% 33% 46% 65 29%
2010 10% 2.53% 34% 46% 63 32%
2011 17% 2.67% 33% 46% 88 19%
2012 9% 2.48% 33% 46% 47 18%
2013 9% 2.27% 35% 44% 51 20%
2014E 7% 2.30% 36% 43% 45 20%
2015E 7% 2.30% 36% 42% 45 20%
42,297 6% 17,400 5% (27,482) 2% 32,215 9% (5,579) -44% 26,636 ,
48,153 14% 19,192 10% (29,624) 8% 37,721 17% (6,578) 18% 31,143 , 17% (1,654) 29,490 3% 9,165 (81) 20,243 5% 1.24% 10.4% 11.9%
43,655 -9% 21,815 14% (30,369) 3% 35,101 -7% (7,598) 16% 27,503 , -12% 1,615 29,118 -1% 8,393 (127) 20,598 2% 1.19% 10.9% 11.2%
45,618 4% 23,651 8% (31,997) 5% 37,272 6% (7,568) 0% 29,705 , 8% 6,607 36,312 25% 11,505 (215) 24,593 19% 1.32% 11.8% 11.6%
52,696 16% 26,355 11% (36,059) 13% 42,992 15% (12,027) 59% 30,965 , 4% 3,183 34,148 -6% 6,497 (313) 27,338 11% 1.35% 11.6% 11.5%
54,952 4% 27,299 4% (37,860) 5% 44,391 3% (7,248) -40% 37,142 , 20% 3,159 40,301 18% 7,213 (68) 33,021 21% 1.46% 11.3% 12.8%
55,879 2% 30,729 13% (37,947) 0% 48,661 10% (8,593) 19% 40,068 , 8% 4,849 44,917 11% 8,882 (130) 35,906 9% 1.43% 11.4% 12.6%
60,747 9% 33,802 10% (40,715) 7% 53,834 11% (8,183) -5% 45,651 , 14% 3,500 49,151 9% 9,719 (149) 39,283 9% 1.45% 11.4% 12.8%
65,384 8% 37,183 10% (43,336) 6% 59,231 10% (8,758) 7% 50,474 , 11% 3,500 53,974 10% 10,672 (172) 43,130 10% 1.48% 11.4% 12.9%
1,922 28,558 9,220 (120) 19,218 8% 1.25% 10.4% 12.2%
Source: Company reports and J.P. Morgan estimates.
166
Krung Thai Bank Pub Co Ltd Our top pick of the sector Strong franchise Well-balanced loan portfolio with the least corporate loan exposure compared to big bank peers
Tier 1 capital gets much stronger; this should improve lending appetite Regaining efficiencies post K-Transformation spending led to strong earnings growth and ROE profile
P/E Bands
P/B Bands
350
300
300
14x
250
12x 10.4x 10x
Source: Bloomberg and J.P. Morgan estimates.
Source: Bloomberg and J.P. Morgan estimates.
167
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-02
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
0
Jan-05
0 Jan-04
50 Jan-09
100
Jan-08
6x
1.4x 1.2x
Jan-07
150
Jan-06
8x
50 Jan-03
2.0x 1.7x
Jan-05
100
1.8x
200
Jan-04
150
2 2x 2.2x
250
Jan-03
200
Jan-02
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Applying active strategy on non-NII
Earnings expectations – KBANK Key operating metrics Unit: Bt in millions
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Loan grow th L h NIM Non-NII contribution Cost/income Credit cost (bp) Effective tax rate NII Y/Y grow th Non-NII Y/Y grow th Opex Y/Y grow th PPOP Y/Y grow th Provision Y/Y grow th Operating p g profit p Y/Y grow th Exceptionals Pre-tax profit Y/Y grow th Income tax Minorities interest Net profit Y/Y grow th ROA Equity/assets ROE
2007 12% 3.79% 29% 46% 82 30%
2008 19% 3.67% 30% 49% 94 31%
2009 4% 3.22% 35% 51% 102 29%
2010 14% 3.48% 37% 51% 66 30%
2011 12% 3.75% 37% 48% 64 35%
2012 10% 3.58% 39% 45% 66 23%
2013 8% 3.55% 39% 44% 85 20%
2014E 8% 3.63% 40% 43% 85 20%
2015E 8% 3.59% 41% 43% 85 20%
34,389 8% 14,388 30% (22,654) 14% 26,123 14% (5,887) 9% 20,236 ,
39,179 14% 16,923 18% (27,662) 22% 28,441 9% (7,834) 33% 20,607 , 2% 1,571 22,178 4% 6,844 (0) 15,333 2% 1.33% 8.7% 14.4%
39,808 2% 20,998 24% (31,293) 13% 29,512 4% (9,403) 20% 20,109 , -2% 745 20,855 -6% 6,033 (62) 14,761 -4% 1.11% 8.8% 12.6%
46,744 17% 27,884 33% (38,003) 21% 36,625 24% (6,701) -29% 29,924 , 49% 515 30,440 46% 9,094 (1 299) (1,299) 20,046 36% 1.37% 8.7% 15.7%
56,491 21% 33,265 19% (43,019) 13% 46,737 28% (7,346) 10% 39,392 , 32% 752 40,144 32% 13,962 (1 957) (1,957) 24,226 21% 1.48% 9.0% 16.7%
63,581 13% 40,147 21% (46,934) 9% 56,794 22% (8,390) 14% 48,404 , 23% 578 48,981 22% 11,136 (2 585) (2,585) 35,260 46% 1.86% 8.9% 20.8%
72,797 14% 47,223 18% (52,496) 12% 67,524 19% (11,743) 40% 55,781 , 15% 522 56,303 15% 11,457 (3 522) (3,522) 41,325 17% 1.89% 9.6% 20.4%
81,389 12% 53,904 14% (58,117) 11% 77,176 14% (12,749) 9% 64,427 , 16% 0 64,427 14% 13,110 (4 050) (4,050) 47,267 14% 1.98% 10.3% 19.8%
88,282 8% 61,547 14% (63,929) 10% 85,900 11% (13,777) 8% 72,122 , 12% 0 72,122 12% 14,676 (4 658) (4,658) 52,789 12% 2.02% 11.1% 18.9%
1,176 21,412 6,408 0 15,005 10% 1.55% 10.1% 15.9%
Source: Company reports and J.P. Morgan estimates.
168
Krung Thai Bank Pub Co Ltd KTB (OW): OW on attractive valuation Attractive valuation Potential acceleration in public spending
NPL risk (exposure to Sahafarm and SSI) and still need to build higher LLR
P/E Bands
P/B Bands 35
45
16.5x
40 35 30 25 20 15 10
1.9x
30
1.6x
13.2x
25
9.8x 8.9x 6.5x
20
1.2x
15
0.9x
10
0 6x 0.6x
3.2x
1.3x
5
5
Source: Bloomberg and J.P. Morgan estimates. Source: Bloomberg and J.P. Morgan estimates.
169
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-02
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Jan-03
0
0 Jan-02
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Upside on Non-NII but need to watch on execution
Earnings expectations – KTB Key operating metrics Unit: Bt in million
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Loan grow th L h NIM Non-NII contribution Cost/income Credit cost (bp) Effective tax rate NII Y/Y grow th Non-NII Y/Y grow th Opex Y/Y grow th PPOP Y/Y grow th Provision Y/Y grow th Operating p g profit p Y/Y grow th Exceptionals Pre-tax profit Y/Y grow th Income tax Minorities interest Net profit Y/Y grow th ROA Equity/assets ROE
2007 3% 3.49% 19% 48% 207 14%
2008 9% 3.47% 21% 48% 109 22%
2009 3% 2.66% 28% 54% 59 31%
2010 16% 2.54% 29% 53% 53 27%
2011 14% 2.86% 27% 48% 101 25%
2012 7% 2.91% 28% 43% 102 25%
2013 12% 2.82% 30% 44% 76 19%
2014E 10% 2.82% 29% 46% 79 19%
2015E 10% 2.80% 29% 46% 77 19%
40,013 -4% 9,142 4% (23,515) 12% 25,640 -14% (19,575) 19% 6,065 ,
41,661 4% 11,369 24% (25,391) 8% 27,639 8% (10,906) -44% 16,733 , 176% (996) 15,737 110% 3,465 (0) 12,272 92% 0.97% 7.8% 12.3%
36,166 -13% 13,784 21% (26,990) 6% 22,960 -17% (6,243) -43% 16,717 , 0% 898 17,615 12% 5,426 (0) 12,189 -1% 0.85% 7.3% 11.3%
39,768 10% 16,402 19% (29,712) 10% 26,458 15% (6,124) -2% 20,334 , 22% 115 20,449 16% 5,535 0 14,913 22% 0.90% 7.1% 12.5%
50,384 27% 18,642 14% (33,175) 12% 35,851 35% (13,544) 121% 22,306 , 10% 498 22,804 12% 5,777 0 17,027 14% 0.91% 6.6% 13.3%
58,569 16% 22,976 23% (35,343) 7% 46,202 29% (15,163) 12% 31,039 , 39% 351 31,390 38% 7,863 0 23,527 38% 1.11% 8.1% 15.0%
64,481 10% 27,289 19% (40,313) 14% 51,457 11% (12,311) -19% 39,147 , 26% 2,560 41,707 33% 7,778 0 33,929 44% 1.42% 8.2% 17.4%
70,925 10% 28,323 4% (45,708) 13% 53,541 4% (14,118) 15% 39,423 , 1% 0 39,423 -5% 7,490 0 31,932 -6% 1.22% 8.3% 14.8%
77,016 9% 31,722 12% (50,488) 10% 58,250 9% (15,119) 7% 43,132 , 9% 0 43,132 9% 8,195 0 34,937 9% 1.23% 8.3% 14.8%
1,411 7,476 1,069 0 6,407 -54% 0.53% 7.9% 6.8%
Source: Company reports and J.P. Morgan estimates.
170
Siam Commercial Bank Pub Co SCB (OW): Our top pick of the sector Strong franchise
Defensive strategy gy being g applied pp High ROE and that valuation premium is deserved Auto loan is 10% of portfolio – hence, NPL risk is manageable, in our view.
PE Bands
PB Bands
300
250
15x
250 200 150
2.5x
13x
200
11x 10.3x 9x
150
2.0x2.1x 1.8x 1.5x 1.2x
100
7x
100
50
50
Source: Bloomberg and J.P. Morgan estimates.
171
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-02
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
Source: Bloomberg and J.P. Morgan estimates.
Jan-03
0
0 Jan-02
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Applying active and flexible strategies on non-NII strategy
Earnings expectations – SCB Key operating metrics Unit: Bt in million
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Loan grow th L h NIM Non-NII contribution Cost/income Credit cost (bp) Effective tax rate NII Y/Y grow th Non-NII Y/Y grow th Opex Y/Y grow th PPOP Y/Y grow th Provision Y/Y grow th Operating p g profit p Y/Y grow th Exceptionals Pre-tax profit Y/Y grow th Income tax Minorities interest Net profit Y/Y grow th ROA Equity/assets ROE
2007 16% 3.43% 34% 47% 50 30%
2008 6% 3.60% 35% 42% 55 29%
2009 2% 3.17% 38% 46% 57 25%
2010 13% 3.09% 41% 45% 47 28%
2011 22% 3.24% 41% 43% 56 24%
2012 20% 3.17% 39% 42% 66 21%
2013 12% 3.18% 40% 39% 83 19%
2014E 8% 3.24% 39% 38% 70 20%
2015E 8% 3.24% 40% 38% 70 20%
35,998 20% 18,447 11% (25,550) 17% 28,894 17% (4,036) -42% 24,859 ,
40,864 14% 21,686 18% (26,507) 4% 36,042 25% (4,954) 23% 31,088 , 25% (909) 30,179 21% 8,888 (123) 21,169 22% 1.76% 10.2% 17.8%
37,526 -8% 23,106 7% (27,973) 6% 32,658 -9% (5,285) 7% 27,373 , -12% 552 27,925 -7% 7,076 (93) 20,756 -2% 1.64% 10.8% 15.5%
39,753 6% 27,717 20% (30,535) 9% 36,935 13% (4,699) -11% 32,236 , 18% 1,655 33,891 21% 9,563 (123) 24,205 17% 1.75% 10.4% 16.4%
50,526 27% 35,180 27% (36,883) 21% 48,822 32% (6,630) 41% 42,192 , 31% 5,330 47,521 40% 11,213 (36) 36,273 50% 2.16% 9.9% 21.3%
62,105 23% 39,588 13% (42,402) 15% 59,291 21% (9,396) 42% 49,895 , 18% 1,293 51,188 8% 10,682 (285) 40,220 11% 1.94% 9.6% 19.9%
73,008 18% 48,246 22% (47,317) 12% 73,937 25% (13,641) 45% 60,296 , 21% 2,277 62,573 22% 11,821 (519) 50,232 25% 2.09% 9.7% 21.7%
81,683 12% 53,269 10% (51,857) 10% 83,095 12% (12,659) -7% 70,436 , 17% 0 70,436 13% 14,087 (597) 55,752 11% 2.12% 10.4% 21.1%
88,542 8% 59,576 12% (56,837) 10% 91,281 10% (13,671) 8% 77,610 , 10% 0 77,610 10% 15,522 (687) 61,401 10% 2.16% 10.9% 20.3%
56 24,914 7,434 (125) 17,356 31% 1.58% 9.5% 16.5%
Source: Company reports and J.P. Morgan estimates.
172
TMB Bank Pcl TMB (UW): Recovery underway; M&A news supports stock valuation Balance sheet leverage has increased to comparable levels with peers. This suggests limited room for
further expansion or TMB has to draw additional liquidity. This will have negative NIM implications.
Credit cost should normalize at higher level. So far credit costs have been low but had major extra in
some quarters leading to very weak profit. M&A speculation backing up the stock valuation and driving the price performance
P/E Bands
9 8
46 46x
7 6
34x
5
23x
4
13 1x 13.1x
3 2
11x
1
Source: Bloomberg and J.P. Morgan estimates.
Source: Bloomberg and J.P. Morgan estimates.
173
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-14
Jan-05
Jan-13
Jan-04
0
-1x Jan-12
2.3x 1.5x 11.8x 8x 1.3x 0.9x 0.4x Jan-03
10 9 8 7 6 5 4 3 2 1 0 (1) Jan-11
P/B Bands
Jan-02
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Aim to boost NIM hence lend more into unsecured personal loan (clean loan) and small SMEs.
Earnings expectations – TMB Key operating metrics Unit: Bt in million
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Loan grow th L h NIM Non-NII contribution Cost/income Credit cost (bp) Effective tax rate NII Y/Y grow th Non-NII Y/Y grow th Opex Y/Y grow th PPOP Y/Y grow th Provision Y/Y grow th Operating p g profit p Y/Y grow th Exceptionals Pre-tax profit Y/Y grow th Income tax Minorities interest Net profit Y/Y grow th ROA Equity/assets ROE
2007 -14% 14% 2.17% 30% 56% 610 -1%
2008 -9% 9% 2.33% 28% 61% 113 14%
2009 -14% 14% 1.94% 34% 75% 66 2%
2010 -1% 1% 1.43% 41% 91% 29 1%
2011 10% 2.39% 31% 63% 81 1%
2012 14% 2.61% 29% 57% 205 2%
2013 10% 3.06% 28% 50% 160 18%
2014E 6% 3.10% 29% 50% 115 20%
2015E 7% 3.10% 29% 51% 100 20%
14,285 11% 6,172 20% (11,509) -2% 8,948 42% (30,983) 138% ((22,034) , )
13,929 -2% 5,492 -11% (11,777) 2% 7,645 -15% (5,076) -84% 2,568 , -112% (1,952) 616 -161% 87 511 424 -101% 0.07% 7.5% 1.0%
10,662 -23% 5,474 0% (12,112) 3% 4,024 -47% (2,628) -48% 1,396 , -46% 604 2,000 -42% 34 1 981 1,981 1,946 359% 0.34% 8.6% 4.2%
7,566 -29% 5,346 -2% (11,750) -3% 1,163 -71% (1,051) -60% 112 -92% 867 979 24% 13 972 958 -51% 0.17% 8.4% 2.0%
14,236 88% 6,461 21% (13,046) 11% 7,651 558% (3,104) 195% 4,547 , 3969% (475) 4,073 -426% 40 4 048 4,048 4,010 318% 0.61% 7.3% 7.9%
17,065 20% 6,858 6% (13,727) 5% 10,196 33% (8,751) 182% 1,445 , -68% 222 1,667 -7% 36 1 640 1,640 1,605 -60% 0.22% 7.5% 3.0%
20,824 22% 8,252 20% (14,549) 6% 14,527 42% (7,613) -13% 6,914 , 378% 133 7,047 -107% 1,297 7 037 7,037 5,739 258% 0.78% 8.1% 10.0%
22,433 8% 9,077 10% (15,865) 9% 15,645 8% (5,919) -22% 9,726 , 41% 0 9,726 71% 1,945 9 713 9,713 7,768 35% 0.99% 8.3% 12.0%
23,896 7% 9,985 10% (17,302) 9% 16,579 6% (5,510) -7% 11,069 , 14% 0 11,069 -69% 2,214 11 054 11,054 8,840 14% 1.06% 8.6% 12.5%
(21,270) (43,304) 237 (43 442) (43,442) (43,677) 255% -6.37% 7.1% -95.6%
Source: Company reports and J.P. Morgan estimates.
174
Thanachart Capital Pcl TCAP (UW): Balance sheet risk is high Balance sheet is highly leveraged and NPL coverage is relatively low.
Competition p in auto HP and deposit p market suggest gg sustained p period of depressed p NIM. Peaked growth & profitability for auto HP
P/B Bands
90
90
80
80
70
70
60
60
9x
40
Source: Bloomberg and J.P. Morgan estimates.
Source: Bloomberg and J.P. Morgan estimates.
175
Jan-14
Jan-13
Jan-12
0 Jan-02
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-03
0
0.2x
10 Jan-11
2x
Jan-10
10
20
Jan-09
5x
Jan-08
20
0.4x
30
Jan-07
7x
30
0.6x 0.4x
Jan-06
8x
50
Jan-05
40
11x
0.7x
Jan-04
50
0.9x
Jan-03
P/E Bands
Jan-02
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
This implies growth limitation, profitability pressure, and higher probability of re-capitalization.
Earnings expectations – TCAP Key operating metrics Unit: Bt in million
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Loan grow th L h NIM Non-NII contribution Cost/income Credit cost (bp) Effective tax rate NII Y/Y grow th Non-NII Y/Y grow th Opex Y/Y grow th PPOP Y/Y grow th Provision Y/Y grow th Operating p g profit p Y/Y grow th Exceptionals Pre-tax profit Y/Y grow th Income tax Minorities interest Net profit Y/Y grow th ROA Equity/assets ROE
2007 14% 2.81% 52% 69% 91 35%
2008 17% 3.18% 51% 66% 138 23%
2009 3% 3.38% 57% 69% 100 29%
2010 111% 3.56% 30% 52% 37 32%
2011 5% 2.86% 30% 63% 33 26%
2012 19% 2.64% 32% 63% 42 20%
2013 5% 2.66% 33% 54% 149 20%
2014E 3% 2.67% 29% 59% 80 19%
2015E 6% 2.66% 30% 61% 80 19%
8,284 34% 8,860 60% (11,783) 17% 5,361 218% (2,052) 122% 3,310 ,
11,084 34% 11,448 29% (14,784) 25% 7,748 45% (3,593) 75% 4,155 , 26% 187 4,342 -11% 1,000 (574) 2,768 -2% 0.77% 6.7% 10.5%
14,148 28% 18,487 61% (22,656) 53% 9,979 29% (2,849) -21% 7,130 , 72% 3,034 10,164 134% 2,989 (2 066) (2,066) 5,109 85% 1.20% 7.2% 17.1%
23,022 63% 9,693 -48% (17,103) -25% 15,613 56% (1,653) -42% 13,959 , 96% 1,186 15,146 49% 4,843 (4 664) (4,664) 5,639 10% 0.84% 4.1% 16.2%
24,315 6% 10,244 6% (21,760) 27% 12,799 -18% (2,077) 26% 10,722 , -23% 1,186 11,908 -21% 3,136 (3 770) (3,770) 5,003 -11% 0.56% 4.3% 13.5%
24,234 0% 11,546 13% (22,571) 4% 13,208 3% (2,906) 40% 10,302 , -4% 1,911 12,214 3% 2,463 (4 270) (4,270) 5,481 10% 0.57% 4.2% 13.5%
26,557 10% 12,959 12% (21,475) -5% 18,041 37% (11,511) 296% 6,531 , -37% 14,761 21,292 74% 4,288 (7 773) (7,773) 9,231 68% 0.89% 4.5% 20.5%
27,469 3% 11,203 -14% (22,980) 7% 15,692 -13% (6,436) -44% 9,256 , 42% 1,815 11,071 -48% 2,062 (3 525) (3,525) 5,484 -41% 0.51% 4.6% 11.2%
28,479 4% 12,171 9% (24,714) 8% 15,936 2% (6,728) 5% 9,208 , -1% 1,815 11,023 0% 2,053 (3 506) (3,506) 5,464 0% 0.48% 4.7% 10.4%
1,564 4,874 1,705 (351) 2,818 92% 0.93% 8.2% 11.6%
Source: Company reports and J.P. Morgan estimates.
176
Tisco Financial Group Pcl TISCO (N): High quality but no catalyst Still like quality of the bank And valuation has gone much cheaper now
Peaked auto lending growth and profitability. Being one of the major lenders to first-car scheme Growth and capital still need to be balanced (Tier 1 below 10%)
P/E Bands
P/B Bands 80
14x 11x 9x
0.8x
20
4x
10
Source: Bloomberg and J.P. Morgan estimates.
Source: Bloomberg and J.P. Morgan estimates.
177
Jan-14
Jan-13
0 Jan-02Jan-03Jan-04Jan-05Jan-06Jan-07Jan-08Jan-09Jan-10Jan-11Jan-12Jan-13Jan-14
Jan-12
0
10
Jan-11
20
1.1x
30
Jan-10
30
6x
Jan-09
40
40
Jan-08
7x
Jan-07
50
1.8x 1.2x 1.5x
50
Jan-06
60
21 2.1x
60
Jan-05
70
70
Jan-04
80
Jan-03
90
Jan-02
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
But seeing no positive catalysts
Earnings expectations – TISCO Key operating metrics Unit: Bt in millions
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Loan grow th L h NIM Non-NII contribution Cost/income Credit cost (bp) Effective tax rate NII Y/Y grow th Non-NII Y/Y grow th Opex Y/Y grow th PPOP Y/Y grow th Provision Y/Y grow th Operating p g profit p Y/Y grow th Exceptionals Pre-tax profit Y/Y grow th Income tax Minorities interest Net profit Y/Y grow th ROA Equity/assets ROE
2007 17% 3.88% 37% 53% 85 28%
2008 18% 3.78% 33% 47% 102 17%
2009 10% 4.57% 30% 42% 142 25%
2010 31% 4.49% 34% 43% 147 30%
2011 24% 3.56% 36% 46% 77 34%
2012 34% 2.78% 46% 49% 89 22%
2013 18% 2.78% 42% 40% 153 20%
2014E 10% 2.77% 42% 40% 150 20%
2015E 10% 2.75% 42% 41% 150 20%
3,488 24% 2,046 11% (2,948) 0% 2,586 52% (695) -1482% 1,891 ,
4,162 19% 2,040 0% (2,917) -1% 3,285 27% (980) 41% 2,304 , 22% (223) 2,082 -9% 361 (6) 1,714 4% 1.52% 9.0% 14.4%
5,929 42% 2,556 25% (3,538) 21% 4,947 51% (1,553) 58% 3,394 , 47% 2 3,396 63% 840 (360) 2,196 28% 1.66% 9.0% 18.4%
6,861 16% 3,561 39% (4,518) 28% 5,905 19% (1,947) 25% 3,958 , 17% 201 4,159 22% 1,256 (14) 2,888 32% 1.86% 8.6% 21.2%
6,916 1% 3,883 9% (4,935) 9% 5,864 -1% (1,291) -34% 4,573 , 16% 34 4,607 11% 1,563 222 3,267 13% 1.67% 7.3% 21.1%
7,044 2% 6,018 55% (6,447) 31% 6,615 13% (1,922) 49% 4,693 , 3% 121 4,814 4% 1,081 (28) 3,705 13% 1.45% 6.3% 21.5%
8,968 27% 6,480 8% (6,241) -3% 9,207 39% (4,141) 115% 5,066 , 8% 354 5,420 13% 1,064 (107) 4,249 15% 1.31% 6.4% 20.6%
10,383 16% 7,442 15% (7,203) 15% 10,622 15% (4,606) 11% 6,015 , 19% 0 6,015 11% 1,203 (107) 4,705 11% 1.25% 6.6% 19.3%
11,348 9% 8,186 10% (7,923) 10% 11,611 9% (5,061) 10% 6,550 , 9% 0 6,550 9% 1,310 (107) 5,133 9% 1.25% 6.8% 18.8%
398 2,289 638 (0) 1,651 7% 1.80% 12.5% 13.4%
Source: Company reports and J.P. Morgan estimates.
178
Kiatnakin Bank Pcl KK (UW): Risky exposure Auto HP and distressed asset portfolio – negative earnings outlook.
developer lending (14% of loans: 58% greater BKK, 21% South, 13% East, 4% Central, 2% North, and 2% NE)
P/E Bands
P/B Bands
80
80
70
70
60
60
1.5x 1.2x 1.0x
50
10x12x
50
40
10x
40
30
7x
30
0.7x 0.4x
20
5x
20
10
3x
10
0.9x
Source: Bloomberg and J.P. Morgan estimates.
179
Jan-14
Jan-13
Jan-12
Jan-11
Jan-10
Jan-09
Jan-08
Jan-07
Jan-06
Jan-05
Jan-04
Jan-02
JJan-14
JJan-13
JJan-12
JJan-11
JJan-10
JJan-09
JJan-08
JJan-07
JJan-06
JJan-05
JJan-04
JJan-03
Source: Bloomberg and J.P. Morgan estimates.
Jan-03
0
0 JJan-02
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
High exposure in used car lending (50% of auto loan), provincial lending (76% of auto loan), and small-
Earnings expectations – KK Key operating metrics Unit: Bt in million
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Loan grow th L h NIM Non-NII contribution Cost/income Credit cost (bp) Effective tax rate NII Y/Y grow th Non-NII Y/Y grow th Opex Y/Y grow th PPOP Y/Y grow th Provision Y/Y grow th Operating p g profit p Y/Y grow th Exceptionals Pre-tax profit Y/Y grow th Income tax Minorities interest Net profit Y/Y grow th ROA Equity/assets ROE
2007 26% 5.43% 12% 51% 109 17%
2008 23% 4.95% 12% 50% 134 9%
2009 8% 4.38% 15% 47% 81 28%
2010 23% 4.54% 21% 53% 48 30%
2011 27% 4.05% 20% 61% 105 16%
2012 25% 3.51% 28% 59% 101 15%
2013 13% 3.69% 39% 50% 124 20%
2014E 8% 3.59% 40% 52% 120 20%
2015E 8% 3.60% 40% 53% 120 20%
4,087 8% 535 18% (2,378) 23% 2,244 -3% (644) 120% 1,600 ,
4,672 14% 627 17% (2,623) 10% 2,676 19% (990) 54% 1,686 , 5% 359 2,046 -21% 175 (4) 1,867 -13% 1.83% 15.0% 10.4%
5,033 8% 863 37% (2,779) 6% 3,116 16% (684) -31% 2,432 , 44% 666 3,098 51% 866 (2) 2,229 19% 1.84% 14.1% 12.7%
5,826 16% 1,508 75% (3,871) 39% 3,463 11% (470) -31% 2,993 , 23% 1,086 4,080 32% 1,213 (26) 2,840 27% 2.11% 14.7% 14.6%
6,476 11% 1,630 8% (4,941) 28% 3,164 -9% (1,278) 172% 1,886 , -37% 1,535 3,421 -16% 535 (27) 2,859 1% 1.73% 12.5% 12.8%
7,111 10% 2,738 68% (5,843) 18% 4,005 27% (1,555) 22% 2,450 , 30% 1,581 4,031 18% 605 (36) 3,390 19% 1.61% 14.2% 11.9%
8,347 17% 5,282 93% (6,879) 18% 6,750 69% (2,240) 44% 4,509 , 84% 283 4,793 19% 951 (22) 3,820 13% 1.58% 14.1% 11.2%
8,642 4% 5,796 10% (7,510) 9% 6,929 3% (2,397) 7% 4,532 , 1% 0 4,532 -5% 899 (25) 3,608 -6% 1.40% 13.7% 10.1%
9,260 7% 6,298 9% (8,199) 9% 7,358 6% (2,588) 8% 4,770 , 5% 0 4,770 5% 947 (29) 3,795 5% 1.39% 13.3% 10.3%
1,002 2,601 445 (2) 2,154 6% 2.60% 20.9% 11.9%
Source: Company reports and J.P. Morgan estimates.
180
Conclusion High LDRs and pull-back of liquidity is leading to slower credit growth, save for Philippines Funding competition has begun in earnest in Singapore/Malaysia, Thailand in early stages Quality of non-interest income will be an important differentiating factor within countries
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Credit quality is holding up well, despite cyclical headwinds, a risk in the making M&A is an important investment driver Valuations are dispersed Easing liquidity supporting Indonesia for now High in Malaysia, with rising risks Playing for an overshoot in Thailand Singapore has differentiated stock specific drivers Philippines stretched Top picks: DBS, SECB, HLBK, BCA and SCB
181
ASEAN Banks Valuations Valuations CMP
Mkt Cap
LC
$Mn
P/E (x)
P/BV (x)
Div yield (%)
RoE (%)
FY14E
FY15E
FY16E
FY14E
FY15E
FY16E
FY14E
FY15E
FY16E
FY14E
FY15E
FY16E
ASEA AN Bank ks
LIQUIDITY POSES GROWTH CHALLENGES
Philippines BANK OF THE PHILIPPINE ISLAN
97.00
8,719
22.8
17.0
15.2
2.76
2.52
2.30
2.1
2.4
2.9
13.7
15.5
15.8
BDO UNIBANK INC
90.00
7,373
16.2
13.4
12.1
1.94
1.74
1.56
2.3
1.6
1.8
12.3
13.6
13.6
METROPOLITAN BANK & TRUST
86.00
5,400
14.6
13.5
11.5
1.76
1.62
1.48
1.2
1.5
1.7
12.3
12.6
13.6
PHILIPPINE NATIONAL BANK
89.20
2,549
17.7
14.6
10.4
1.02
0.97
0.90
-
1.1
2.2
10.6
10.4
10.4
127.00
1,751
10.7
10.9
10.1
1.60
1.45
1.32
1.4
1.5
1.6
16.0
13.8
13.5
SECURITY BANK CORP EAST WEST BANKING CORP
29.45
760
13.4
11.4
10.5
1.52
1.34
1.19
-
-
-
12.0
12.5
12.0
CHINA BANKING CORPORATION
51.90
1,887
16.1
12.8
10.8
1.47
1.39
1.29
2.8
3.6
4.2
9.7
11.1
12.4
BANK RAKYAT INDONESIA PERSER
11,100
23,408
12.1
10.5
9.3
2.88
2.42
2.05
2.5
2.8
3.2
26.0
25.0
23.8
BANK NEGARA INDONESIA PERSER
5,450
8,688
10.6
10.2
8.9
1.87
1.66
1.47
2.8
2.9
3.4
18.7
17.2
17.5
BANK CENTRAL ASIA TBK PT
11,850
24,975
16.2
13.6
12.4
3.77
3.12
2.62
1.5
1.8
2.0
25.6
25.1
23.1
BANK MANDIRI PERSERO TBK PT
10,525
20,994
12.0
10.3
9.1
2.41
2.06
1.77
2.1
2.4
2.7
21.6
21.5
20.9
BANK DANAMON INDONESIA TBK
3,805
3,118
10.1
9.5
7.6
1.08
1.01
0.92
3.0
3.2
4.0
11.1
11.0
12.7 13.1
Indonesia
Malaysia AMMB HOLDINGS BHD
6.75
6,444
10.9
11.1
10.7
1.56
1.45
1.36
3.9
4.4
4.7
14.8
13.4
HONG LEONG BANK BERHAD
14.38
8,192
13.1
11.8
10.7
1.87
1.69
1.53
2.4
2.8
3.1
15.1
15.1
15.1
PUBLIC BANK BERHAD
19.28
23,523
16.3
14.9
13.1
2.71
2.46
2.20
2.7
2.9
2.9
18.2
17.2
17.6
MALAYAN BANKING BHD
10.10
29,236
13.3
12.3
11.1
1.83
1.71
1.60
6.4
6.9
7.9
15.3
15.3
15.9
DBS GROUP HOLDINGS LTD
17.96
35,369
10.6
9.8
7.9
1.14
1.08
1.00
3.3
3.6
3.9
10.8
11.2
12.9
UNITED OVERSEAS BANK LTD
23.22
29,765
13.0
12.5
11.9
1.43
1.35
1.27
3.1
3.3
3.5
11.7
11.1
10.9
SIAM COMMERCIAL BANK PUB CO
189.50
20,132
11.6
10.5
9.5
2.27
2.00
1.77
2.9
3.4
4.0
21.1
20.3
19.7
KASIKORNBANK PCL
Singapore
Thailand 225.00
16,854
11.4
10.2
9.1
2.09
1.79
1.54
1.6
1.8
2.0
19.8
18.9
18.1
KRUNG THAI BANK PUB CO LTD
23.60
10,323
10.4
9.4
8.5
1.46
1.34
1.22
3.8
4.2
4.7
14.8
14.8
15.1
BANGKOK BANK PUBLIC CO LTD
206.00
12,307
10.0
9.0
8.3
1.23
1.13
1.04
3.9
4.1
4.4
12.8
12.9
13.1
BANK OF AYUDHYA PCL
50.50
9,601
18.4
14.7
NA
2.31
2.14
1.97
2.4
2.8
3.2
13.0
13.8
14.7
TISCO FINANCIAL GROUP PCL
44.00
1,103
7.5
6.5
6.1
1.37
1.22
1.07
5.5
5.5
5.5
19.3
18.8
18.7
3.02
4,129
16.8
15.1
14.4
1.95
1.78
1.62
1.3
1.7
1.7
12.0
12.5
12.0
KIATNAKIN BANK PCL
41.75
1,098
9.7
9.2
8.8
0.97
0.94
0.92
7.2
7.8
8.4
10.2
10.4
10.6
THANACHART CAPITAL PCL
35.25
1,331
8.2
8.3
7.8
0.88
0.83
0.78
4.3
4.5
4.8
11.2
10.4
10.3
TMB BANK PCL
Sources: Company reports, J.P. Morgan estimates, Bloomberg, Price as of 28th Aug 2014
182
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[email protected]. Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s y (or ( the analyst’s y team’s)) coverage g universe.]] Underweight g [Over [ the next six to twelve months,, we expect p this stock will underperform p the average g total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stock’s expected total return is compared to the expected total return of a benchmark country market index, not to those analysts’ coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analyst’s coverage universe can be found on J.P. Morgan’s research website, www.jpmorganmarkets.com.
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Coverage Universe: Modi, Harsh Wardhan: AMMB Holdings (AMMB.KL), Banco de Oro (BDO.PS), Bank Central Asia (BCA) (BBCA.JK), Bank Danamon (BDMN.JK), Bankk Negara Indonesia d i Persero (BBNI.JK), ( ) Bankk Rakyat k Indonesia d i (BBRI.JK), ( ) Bankk off the h Philippine hili i Islands l d (BPI) ( ) (BPI.PS), ( S) Bursa Malaysia l i Bhd hd (BMYS.KL), ( S ) CIMB C Group G Holdings (CIMB.KL), China Banking Corporation (CHIB.PS), DBS Group Holdings (DBSM.SI), East West Banking Corporation (EW.PS), Hong Kong Exchanges & Clearing (0388.HK), Hong Leong Bank (HLBB.KL), Maybank (Malayan Banking) (MBBM.KL), Metropolitan Bank (MBT.PS), OCBC Bank (OCBC.SI), PT Bank Mandiri Tbk. (BMRI.JK), Philippine National Bank (PNB.PS), Public Bank (PUBM.KL), RHB Capital (RHBC.KL), Security Bank Corporation (SECB.PS), Singapore Exchange (SGXL.SI), United Overseas Bank (UOB) (UOBH.SI) Jirajariyavech, Anne: Asian Property Development (AP.BK), Bangkok Bank (BBLf.BK), Bank of Ayudhya (BAY.BK), KASIKORNBANK (KBAN.BK), Kiatnakin Bank (KK BK) Krung Thai Bank (KTB (KK.BK), (KTB.BK), BK) LPN Development (LPN (LPN.BK), BK) Land & Houses (LHf (LHf.BK), BK) Pruksa Real Estate Pcl (PS.BK), (PS BK) Quality Houses (QH.BK), (QH BK) Siam Commercial Bank (SCB.BK), Supalai Public Company Limited (SPALI.BK), TMB Bank Public Company Limited (TMB.BK), Thanachart Capital (TCAP.BK), Tisco Financial Group Pcl. (TISCO.BK) J.P. Morgan Equity Research Ratings Distribution, as of June 30, 2014
Disclosures J.P. Morgan Global Equity Research Coverage IB clients* q y Res earch Coverage g JPMS Equity IB clients*
Overweight (buy) 45% 55% 46% 75%
Neutral (hold) 43% 49% 47% 66%
Underweight (sell) 11% 34% 7% 54%
*Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above.
Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered companies, please see the most recent company-specific research report at http://www.jpmorganmarkets.com, contact the primary analyst or your J.P. Morgan representative, or email
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