BMRI released its 9M24 results on 30 October, with the company remaining on a steady growth trajectory. Headline consolidated 9M24 profit reached IDR42.0tn (+8% y-y), which was on track with our FY24 profit estimate. This brings implied ROAA and ROAE to ~2.7% and ~21.2%, respectively. At the operating level, the bank recorded 9M24 PPOP of IDR66.8tr (+7% y-y) – accounting for 72% of our FY24F projections.

Based on the results, we believe a key area of concern would be related to strong loan growth of ~21% y-y. Yet, headline net interest income for 9M24 only rose by ~3% y-y. This suggests declining NIMs which can be attributed to lack of loan pricing power as well as higher funding costs. For 2025, we think the current high loan growth is unlikely to be maintained. Thus, we think the bank may need to reprice its lending rates upward. Currently, we see early evidence of lending rates getting repriced at levels similar to some of its peers; albeit, this is too early to conclude if such loan repricing can be executed given softening macro-economic backdrop, in our view.

Still, within the Indonesian banking sector, we see BMRI as one of our preferred Indonesian banking stocks.

Key drivers to BMRI’s earnings came from:

● Low funding costs of ~2.8% in 3Q24 (despite slightly up from 2.6% in 2Q24), resulting in NIM of 5.0% in 3Q24 (-10bp q-q , -70bp y-y). Previously, we had argued that stable funding costs would be key to banks’ future earnings predictabilities.

● Stable asset quality persisted. This led to credit costs (CoC) of 70bp in 3Q24 (-20bp q-q / +20bp y-y), bringing 9M24 CoC to 90bp (-10bp y-y). This resulted in risk-adjusted NIM for the bank of 4.5% (+10bp q-q). While this may lead to a Loan-Loss-Reserve (LLR) ratio of 3.2% (-20bp q-q / -130bp y-y), the bank has so far seen near-zero NPLs for its corporate loan book.  As of 9M24, LARs stood at 7.3% (-50bp q-q / -260bp y-y) with implied coverage at 56%. Meanwhile, NPLs stood at 1.0% (flat q-q / -40bp y-y) with coverage of >400%.

● Strong loan growth of 21% y-y (+14% YTD 9M24); we believe this could lead to BMRI raising its FY24 loan growth guidance to 16-18%. We think that loan growth is coming from corporate segments – taking market shares away from mid-sized banks whose recent results show inferior loan growth compared to major key banks such as BMRI. We anticipate that these trends will continue for the foreseeable future.

● Strong growth in key saving deposits. The most important saving deposit showed a growth of 13% y-y (+8.2% YTD 9M24). This helped to boost its CASA ratio to 73.8% (+10bp y-y) and has kept consolidated funding costs (CoF) at 2.8% (+20bp q-q).  

We derive our TP of IDR8,700 using DuPont methodology, with key parameters as follow: a risk-free rate of 6.5%, an equity risk premium of 7.8%, beta of 1.03x, and a CAR-adjusted ROAE of 20.0%. We also use 2025F book as reference. Our TP implies 2.5x FY25F P/B and 12.6x FY25F P/E – compared with the current valuation of 2.1x FY25F P/B and 10.1x FY25F P/E. Risks are worse-than-expected macroeconomic trends, government intervention, tight liquidity competition, and higher credit cost (due to worsening asset qualities) and higher opex growth.

Fig. 5: BMRI LAR / NPL formation %

INVESTMENT RATINGS
A rating of ‘Buy’, indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months. A rating of ‘Neutral’, indicates that the analyst expects the stock to perform in line with the Benchmark over the next 12 months. A rating of ‘Reduce’, indicates that the analyst expects the stock to underperform the Benchmark over the next 12 months. A rating of ‘Suspended’, indicates that the rating, target price, and estimates have been suspended temporarily to comply with applicable regulations and/or firm policies. Securities and/or companies that are labelled as ‘Not Rated’ or ‘No Rating’ are not in regular research coverage. Benchmark is Indonesia Composite Index (‘IDX Composite’). A ‘Target Price’, if discussed, indicates the analyst’s forecast for the share price with a 12-month time horizon, reflecting in part of the analyst’s estimates for the company’s earnings, and may be impeded by general market and macroeconomic trends, and by other risks related to the company or the market in general. 

GENERAL DISCLOSURE/DISCLAIMER 
This report is prepared by PT Verdhana Sekuritas Indonesia (“PTVSI”) a securities company registered in Indonesia, supervised by Indonesia Financial Services Authority (OJK) and a member of the Indonesia Stock Exchange (IDX).

This report is intended for client of PTVSI only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of PTVSI.

The research set out in this report is based on information obtained from sources believed to be reliable, but PTVSI do not make any representation or warranty as to its accuracy, completeness or correctness. The information in this report is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. Any information, valuations, opinions, estimates, forecasts, ratings or targets herein constitutes a judgment as of the date of this report is published, and there is no assurance that future results or events will be consistent.

This report is not to be construed as an offer or a solicitation of an offer to buy or sell any securities or financial products. PTVSI and its associates, its directors, and/or its employees may from time to time have interests in the securities mentioned in this report or it may or will engage in any securities transaction or other capital market services for the company (companies) mentioned herein.

ANALYST CERTIFICATION
The research analyst primarily responsible for the content of this report and certifies that the views about the companies including their securities expressed in this report accurately reflect his/her personal views.  The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.

RESTRICTIONS ON DISTRIBUTION

By accepting this report, the recipient hereof represents and warrants that you are entitled to receive such report in accordance with the restrictions and agrees to be bound by the limitations contained herein. Neither this report nor any copy hereof may be distributed except in compliance with applicable Indonesian capital market laws and regulations. 

Nicholas Santoso (nicholas.santoso@verdhana.id)

Erwin Wijaya (erwin.wijaya@verdhana.id)