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Bank Mandiri (BMRI IJ) (Buy) - Earnings update, TP adjustment

Bank Mandiri (BMRI IJ) (Buy) - Earnings update, TP adjustment

Banks EW 338 10th Feb, 2025

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Earnings update, TP adjustment

TP of IDR7,600 (down from IDR8,700)

Post FY24 results, we revise our FY25-26F earnings estimates. We also add a new forecast year, FY27F. Key reasons for our revised earnings forecasts are:

    1. Concern about strong loan growth of ~20% y-y, yet NII only rose by ~6% y-y in FY24. This can be attributed to the bank’s lack of loan pricing power as well as higher funding costs (reflecting tight liquidity). We think such a high level of loan growth is unlikely to be repeated in FY25F. Thus, it is no surprise that the bank is guiding for a lower loan growth of 10-12% in 2025 – a marked deceleration from 20% in 2024.

    2. Slight decline in NIMs in 4Q24, reflecting our key thesis on the Indonesia banking sector. Specifically, we think that liquidity in the system will remain tight, but it should not worsen. This would reduce NIMs slightly for BMRI, which we estimate at 4.7% in 2025F, and 4.7-4.6% in 2026-27F.

    Our revised earnings forecasts for FY25-26F imply earnings cuts of ~10.3-11.6%, resulting in implied ROAEs of 19.4-20.1% in FY25-27F – one of the highest in the Indonesian banking system. In our view, a near-term share price catalyst is further improvement in system liquidity. Of late, we have not only seen BI reducing the benchmark rate to 6.5% but also SRBIs blended rate to 6.715% (as of 31 Jan 2025) from 7.253% (as of 27 Dec 2024). Key catalysts include easing of SRBI issuance which relieve pressure for BMRI’s CoF

    Valuation and risks

    We derive our TP of IDR7,600 based on a DuPont analysis, assuming a risk-free rate of 6.5% (unchanged), an equity risk premium of 7.8% (unchanged), growth of 11.0% (unchanged), beta 1.05x (up from 1.03x) and a CAR-adjusted ROAE of 19.5% (down from 20.0%). We also use 2025F book as reference. The implied multiples at our TP are 2.3x 2025F book and 12.4x 2025F earnings (compared to current multiples of 2.5x and 13.7x, respectively). Key risks to our view are worsening macroeconomic trends, unfavorable regulatory changes, tighter liquidity competition (which would increase funding costs), worsening credit quality (which would raise credit costs), and higher opex. We also want to highlight the upcoming shareholders’ meeting with management changes a main agenda item.

    Year-end 31 DecFY24FY25FFY26FFY27F
    Currency (IDR)ActualOldNewOldNewOldNew
    PPOP (bn)87,871103,07293,403111,336102,0210114,435
    Reported net profit (bn)55,78364,93657,38770,29163,058070,820
    Normalised net profit (bn)55,78364,93657,38770,29163,058070,820
    FD normalised EPS597.67695.74614.86753.11675.62758.78
    FD norm. EPS growth (%)1.38.62.98.29.912.3
    FD normalised P/E (x)8.6–8.4–7.6–6.8
    Price/adj. book (x)1.7–1.6–1.4–1.3
    Price/book (x)1.7–1.6–1.4–1.3
    Dividend yield (%)6.9–7.0–7.2–7.9
    ROE (%)20.521.219.420.919.620.1
    ROA (%)2.52.52.42.52.42.4
    Source: Company data, Verdhana estimates

    Key data on Bank Mandiri

    Profit and loss (IDRbn)
    Year-end 31 Dec
    FY23
    FY24
    FY25F
    FY26F
    FY27F
    Interest income
    146,266
    164,331
    174,873
    192,032
    206,932
    Interest expense
    -48,257
    -60,054
    -64,599
    -73,328
    -76,149
    Net interest income
    98,010
    104,278
    110,273
    118,704
    130,782
    Net fees and commissions
    20,148
    23,448
    26,794
    29,473
    32,420
    Trading related profits
    3,474
    4,483
    2,500
    2,500
    2,500
    Other operating revenue
    17,026
    14,390
    14,640
    14,890
    15,140
    Non-interest income
    40,648
    42,321
    43,934
    46,864
    50,061
    Operating income
    138,658
    146,599
    154,208
    165,568
    180,843
    Depreciation
    -3,413
    -3,723
    -4,006
    -4,222
    -4,437
    Amortisation
    0
    0
    0
    0
    0
    Operating expenses
    -25,027
    -31,014
    -31,630
    -32,898
    -34,223
    Employee share expense
    -24,423
    -23,991
    -25,169
    -26,427
    -27,748
    Pre-provision op profit
    85,794
    87,871
    93,403
    102,021
    114,435
    Provisions for bad debt
    -11,153
    -11,812
    -15,339
    -16,873
    -19,592
    Other provision charges
    0
    0
    0
    Operating profit
    74,642
    76,060
    78,064
    85,147
    94,843
    Other non-op income
    43
    344
    344
    344
    344
    Associates & JCEs
    0
    0
    0
    Pre-tax profit
    74,685
    76,403
    78,408
    85,491
    95,187
    Income tax
    -14,633
    -15,238
    -15,638
    -17,051
    -18,985
    Net profit after tax
    60,052
    61,165
    62,770
    68,440
    76,202
    Minority interests
    -4,992
    -5,382
    -5,382
    -5,382
    -5,382
    Other items
    0
    0
    0
    0
    0
    Preferred dividends
    0
    0
    0
    0
    0
    Normalised NPAT
    55,060
    55,783
    57,387
    63,058
    70,820
    Extraordinary items
    0
    0
    0
    Reported NPAT
    55,060
    55,783
    57,387
    63,058
    70,820
    Dividends
    -24,702
    -33,036
    -33,470
    -34,432
    -37,835
    Transfer to reserves
    30,358
    22,747
    23,918
    28,626
    32,985
    Growth (%)
    Net interest income
    8.5
    6.4
    5.7
    7.6
    10.2
    Non-interest income
    15.5
    4.1
    3.8
    6.7
    6.8
    Non-interest expenses
    -0.8
    23.9
    2.0
    4.0
    4.0
    Pre-provision earnings
    18.7
    2.4
    6.3
    9.2
    12.2
    Net profit
    33.7
    1.3
    2.9
    9.9
    12.3
    Normalised EPS
    33.7
    1.3
    2.9
    9.9
    12.3
    Normalised FDEPS
    33.7
    1.3
    2.9
    9.9
    12.3
    Loan growth
    18.4
    7.7
    10.1
    10.0
    19.2
    Interest earning assets
    9.2
    4.2
    12.3
    9.7
    16.1
    Interest bearing liabilities
    8.7
    6.1
    11.1
    8.6
    13.7
    Asset growth
    9.1
    3.7
    11.1
    9.0
    15.1
    Deposit growth
    5.8
    7.7
    10.0
    10.0
    10.0
    Source: Company data, Verdhana estimates
    Balance sheet (IDRbn)
    As at 31 Dec
    FY23
    FY24
    FY25F
    FY26F
    FY27F
    Cash and equivalents
    26,432
    31,665
    57,528
    63,281
    69,609
    Inter-bank lending
    Deposits with central bank
    108,605
    105,146
    95,198
    104,718
    115,190
    Total securities
    403,729
    382,751
    512,840
    556,626
    607,636
    Other int earning assets
    110,461
    109,866
    74,514
    82,367
    91,049
    Gross loans
    1,391,869
    1,491,817
    1,644,968
    1,813,041
    2,160,501
    Less provisions
    -53,099
    -49,355
    -57,463
    -67,105
    -79,466
    Net loans
    1,338,770
    1,442,462
    1,587,505
    1,745,936
    2,081,036
    Long-term investments
    7,246
    8,070
    983
    1,218
    1,491
    Fixed assets
    57,978
    63,031
    64,025
    64,803
    65,366
    Goodwill
    0
    0
    0
    0
    0
    Other intangible assets
    0
    0
    0
    0
    0
    Other non IEAs
    120,998
    112,193
    112,193
    112,193
    112,193
    Total assets
    2,174,219
    2,255,184
    2,504,787
    2,731,142
    3,143,570
    Customer deposits
    1,577,730
    1,699,575
    1,869,533
    2,056,486
    2,262,135
    Bank deposits, CDs, debentures
    102,629
    147,179
    174,229
    178,737
    183,671
    Other int bearing liabilities
    102,590
    44,856
    58,500
    48,769
    150,570
    Total int bearing liabilities
    1,782,949
    1,891,609
    2,102,261
    2,283,992
    2,596,375
    Non-int bearing liabilities
    103,776
    50,100
    59,751
    70,367
    132,045
    Total liabilities
    1,886,725
    1,941,710
    2,162,012
    2,354,359
    2,728,420
    Minority interest
    26,642
    29,678
    35,061
    40,443
    45,825
    Common stock
    29,310
    29,762
    29,762
    29,762
    29,762
    Preferred stock
    Retained earnings
    197,304
    220,050
    243,968
    272,594
    305,579
    Reserves for credit losses
    0
    0
    0
    0
    0
    Proposed dividends
    0
    0
    0
    0
    0
    Other equity
    34,239
    33,984
    33,984
    33,984
    33,984
    Shareholders' equity
    260,853
    283,796
    307,714
    336,340
    369,325
    Total liabilities and equity
    2,174,220
    2,255,184
    2,504,787
    2,731,142
    3,143,570
    Non-perf assets
    16,134
    18,029
    15,282
    16,811
    18,492
    Balance sheet ratios (%)
    Loans to deposits
    88.2
    87.8
    88.0
    88.2
    95.5
    Equity to assets
    12.0
    12.6
    12.3
    12.3
    11.7
    Asset quality & capital
    NPAs/gross loans (%)
    1.2
    1.2
    0.9
    0.9
    0.9
    Bad debt charge/gross loans (%)
    0.80
    0.79
    0.93
    0.93
    0.91
    Loss reserves/assets (%)
    2.44
    2.19
    2.29
    2.46
    2.53
    Loss reserves/NPAs (%)
    329.1
    273.7
    376.0
    399.2
    429.7
    Tier 1 capital ratio (%)
    0.0
    0.0
    0.0
    0.0
    0.0
    Total capital ratio (%)
    21.2
    21.4
    20.5
    19.8
    20.3
    Per share
    Reported EPS (IDR)
    589.93
    597.67
    614.86
    675.62
    758.78
    Norm EPS (IDR)
    589.93
    597.67
    614.86
    675.62
    758.78
    FD norm EPS (IDR)
    589.93
    597.67
    614.86
    675.62
    758.78
    DPS (IDR)
    264.67
    353.96
    358.60
    368.92
    405.37
    PPOP PS (IDR)
    919.23
    941.48
    1,000.75
    1,093.08
    1,226.09
    BVPS (IDR)
    2,794.85
    3,040.68
    3,296.94
    3,603.64
    3,957.05
    ABVPS (IDR)
    2,794.85
    3,040.68
    3,296.94
    3,603.64
    3,957.05
    NTAPS (IDR)
    2,794.85
    3,040.68
    3,296.94
    3,603.64
    3,957.05
    Valuations and ratios
    Reported P/E (x)
    8.7
    8.6
    8.4
    7.6
    6.8
    Normalised P/E (x)
    8.7
    8.6
    8.4
    7.6
    6.8
    FD normalised P/E (x)
    8.7
    8.6
    8.4
    7.6
    6.8
    Dividend yield (%)
    5.1
    6.9
    7.0
    7.2
    7.9
    Price/book (x)
    1.8
    1.7
    1.6
    1.4
    1.3
    Price/adjusted book (x)
    1.8
    1.7
    1.6
    1.4
    1.3
    Net interest margin (%)
    5.15
    5.14
    5.01
    4.86
    4.74
    Yield on assets (%)
    7.68
    8.10
    7.95
    7.87
    7.50
    Cost of int bearing liab (%)
    2.82
    3.27
    3.23
    3.34
    3.12
    Net interest spread (%)
    4.86
    4.83
    4.71
    4.53
    4.38
    Non-interest income (%)
    29.3
    28.9
    28.5
    28.3
    27.7
    Cost to income (%)
    38.1
    40.1
    39.4
    38.4
    36.7
    Effective tax rate (%)
    19.6
    19.9
    19.9
    19.9
    19.9
    Dividend payout (%)
    44.9
    59.2
    58.3
    54.6
    53.4
    ROE (%)
    22.3
    20.5
    19.4
    19.6
    20.1
    ROA (%)
    2.64
    2.52
    2.41
    2.41
    2.41
    Operating ROE (%)
    30.2
    27.9
    26.4
    26.4
    26.9
    Operating ROA (%)
    3.58
    3.43
    3.28
    3.25
    3.23
    Source: Company data, Verdhana estimates
    Company profilePT Bank Mandiri (Persero) Tbk or Bank Mandiri, headquartered in Jakarta, is the largest bank in Indonesia in terms of assets, loans and deposits.
    Valuation MethodologyWe derive our TP of IDR7,600 based on a DuPont analysis, assuming a risk-free rate of 6.5%, an equity risk premium of 7.8%, growth of 11.0%, beta 1.05x, and a CAR-adjusted ROAE of 19.5%. We also use 2025F book as reference. The implied multiples at our TP are 2.3x 2025F book and 12.4x 2025F earnings . The benchmark for this stock is the JCI.
    Risks that may impede the achievement of the target priceKey downside risks to our view are worsening macroeconomic trends, unfavorable regulatory changes, and tighter liquidity competition (which would increase funding cost), and worsening credit quality (which would raise credit costs), and higher opex. We also want to highlight the upcoming shareholders’ meeting with main agenda of management changes.
    ESGBank Mandiri is at the forefront of sustainable banking and has taken steps to demonstrate its commitment to be the pioneer of sustainable banking. It has launched the Sustainable Finance Action Plan or Rencana Aksi Keuangan Berkelanjutan (“RAKB”), focusing on responsible lending, which serves as a basis for Green, Social and/or Sustainability (“GSS”) Bond issuance(s). RAKB was designed to increase the size of sustainability financing portfolio of the Bank by implementing it gradually in the wholesale and retail segment based on the Bank’s priority. Bank Mandiri has committed to the United Nations Sustainable Development Goals (“SDGs”) by making RAKB the foundation of investment decision making. There are three essential pillars in RAKB, which include: Sustainable Banking Focused on banking activities, the goal of this pillar is to manage the environment, social, and governance (“ESG”) risk and to expand the opportunities to become a sustainable bank. Sustainable Operation Bank Mandiri is committed to improving its environment and social performance by redesigning real estate management, digital transformation, and human capital management. Corporate Social Responsibility (”CSR”) Bank Mandiri is implementing an integrated and holistic philosophy, which acts as a foundation in corporate social responsibility activities.

    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. 

    Rating Table

    Rating
    Remains
    		Buy
    Target price
    Reduced from IDR 8,700
    		IDR 7,600
    Closing price
    7 February 2025
    		IDR 5,150
    Implied upside+47.6%
    Market Cap (USD mn)29,247.7
    ADT (USD mn)44.8

    Relative performance chart


    Source: LSEG, Verdhana
    M cap (USDmn)
    29,247.7
    Free float (%)
    40.0
    3-mth ADT (USDmn)
    44.8
    (%)
    1M
    3M
    12M
    Absolute (IDR)
    -8.0
    -19.8
    -25.9
    Absolute (USD)
    -8.9
    -22.5
    -28.8
    Rel to Jakarta Stock Exchange Composite Index
    -3.2
    -12.9
    -19.1

    Research Analysts

    Erwin Wijaya (erwin.wijaya@verdhana.id)

    Tags: Banks, BMRI, BMRI JK, BMRI IJ, Erwin Wijaya
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