In our recent note, we wrote that BBRI might face maturing micro/ultra-micro segments in the next few years. This suggests that future growth will be slower (and thus, we think that BBRI may need to re-focus growth in corp/commercial segments). Moreover, we expect larger write-offs for micro/ultra micro segments. Indeed, we believe this was the primary reason for BBRI’s consolidated 9M24 profit growth of ~2% y-y. In our view, BBRI has recorded resilient operating results with its headline 9M24 PPOP jumping ~14% y-y (ahead of our FY24F projections). Given the bank’s accelerated write-offs in 3Q24 (and hence subsequently higher credit costs / CoC), we think 4Q24 CoC may come down to ~300bp (from 3Q24’s ~330bp). Slower Kupedes disbursement may ease NPL pressure for the bank, which in turn could provide greater earnings visibility. These would be key catalysts for the stock.

In this report, we show both bank-only and consolidated 9M24 results. Note that bank-only 9M24 profit shows more encouraging profit growth of +7% y-y – compared to consolidated profit growth of ~2% y-y. Headline PPOP growth for bank-only was also more convincing at +15% y-y – compared to consolidated PPOP growth at +14%. This suggests that not only elevated CoC was high at bank-only (at 3.2% in 9M24 +60bps y-y) but also at key subsidiaries (which resulted in consolidated CoC at +70bp y-y).

Post 9M24 results, while we retain our Buy call on the stock, BBRI may continue to underperform relative to BBCA IJ / BMRI IJ (Both Buys) given that BBRI’s growth in mass-market segments may be inferior compared to BBCA/BMRI’s corporate segments.   

9M24 consolidatedresults summary – refer to tables inside for details

In 9M24, BBRI reported headline profit of IDR45.1tr (+2% y-y – representing 73% of our FY24F earnings estimates. Key highlights from the results are the large jump in credit costs (CoC) to IDR32.5tr (+40% y-y), which implies an annualized CoC of ~330bp – above management’s FY24F CoC guidance of no more than 3.0%. We believe that the large CoC can be attributed to front-loading loan write-offs of approximately IDR33tr in 9M24 – up from the bank’s estimated write-off in 9M23 of IDR25tr. Most of the write-offs came from the mass-market segments, as we believe the bank needs to “clean up” some excess lending it made during 2022-2023, particularly for the mass-market segments (ultra-micro / micro / PNM). We believe that BBRI may still need to write-off more loans in 4Q24F/1H25F. However, the pace and amount should moderate as the bank and its subsidiaries have tightened their loan under-writing criteria, and will likely maintain their stance until its CoC comes down to a normalised level of ~2.5%, possibly from 2026F. The larger write-offs resulted in a lower LAR of 11.8% (-30bp q-q) with coverage of ~56% (amongst the highest for major banks) in 9M24. Having said this, we think management could still have some discretion to “reallocate” excess provisions in some corp loans to “increase” provisions in the micro/ultra micro segments, suggesting that BBRI’s consolidated profit could improve going into 2025F.

Valuation and risks

We derive our TP of IDR6,300 based on DuPont analysis with a risk-free rate of 6.5%, an equity risk premium of 7.8%, growth of 10.0%, beta 0.8x and a CAR-adjusted ROAE of 18.0%. We have also used 2025F book as reference. The implied multiples at our TP would be 2.9x 2025F book and 14.8x 2025F earnings (compared to current multiples of 2.1x and 11.1x, respectively). Risks are worsening macroeconomic trends, unfavorable regulatory changes, and tighter liquidity competition, which could increase funding costs, worsening credit quality which would raise credit costs, and higher opex.

Fig. 3: BBRI bank only vs consolidated comparison

Fig. 8: BBRI - LLR vs 12MMA WO %

Fig. 9: Prudent provisioning BBRI - 12MMA CoC vs 12MMA WO %

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. 

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ANALYST CERTIFICATION
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Nicholas Santoso (nicholas.santoso@verdhana.id)

Erwin Wijaya (erwin.wijaya@verdhana.id)