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

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 Dec	FY24		FY25F		FY26F		FY27F
Currency (IDR)	Actual	Old	New	Old	New	Old	New
PPOP (bn)	87,871	103,072	93,403	111,336	102,021	0	114,435
Reported net profit (bn)	55,783	64,936	57,387	70,291	63,058	0	70,820
Normalised net profit (bn)	55,783	64,936	57,387	70,291	63,058	0	70,820
FD normalised EPS	597.67	695.74	614.86	753.11	675.62		758.78
FD norm. EPS growth (%)	1.3	8.6	2.9	8.2	9.9		12.3
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 (%)	20.5	21.2	19.4	20.9	19.6		20.1
ROA (%)	2.5	2.5	2.4	2.5	2.4		2.4

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.

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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

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

Earnings update, TP adjustment

Key data on Bank Mandiri

Fig. 1: BMRI updated earnings

Fig. 2: BMRI loans and deposit forecast

Fig. 3: BMRI key metrics forecast

Rating Table

Relative performance chart

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

Fig. 1: BMRI updated earnings

Fig. 2: BMRI loans and deposit forecast

Fig. 3: BMRI key metrics forecast

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