We re-initiate our coverage on Bank Mandiri (Mandiri), Indonesia’s largest state-owned bank in terms of assets, with a BUY
recommendation. Our 12-month fair value of Rp7,000/share is derived from a Gordon Growth Model assuming cost-of-equity of
14.5% and ROE of 24%. It represents FY11F PER and PBV of 14.2x and 3.2x, respectively. We believe the bank will enjoy
significant improvement in profitability level in the foreseeable future - narrowing the gap with closest peers’ profitability level. We expect
its ROE to reach 24.6% in 2012. The profitability improvement, we believe, is supported by absence of massive provisions, net interest
margin (NIM) expansion, strong fee-based income growth, and possible tax rate reduction on a rights issue plan.
recommendation. Our 12-month fair value of Rp7,000/share is derived from a Gordon Growth Model assuming cost-of-equity of
14.5% and ROE of 24%. It represents FY11F PER and PBV of 14.2x and 3.2x, respectively. We believe the bank will enjoy
significant improvement in profitability level in the foreseeable future - narrowing the gap with closest peers’ profitability level. We expect
its ROE to reach 24.6% in 2012. The profitability improvement, we believe, is supported by absence of massive provisions, net interest
margin (NIM) expansion, strong fee-based income growth, and possible tax rate reduction on a rights issue plan.
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