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Bank Rakyat Indonesia (BBRI IJ) (Buy) - Conservative stance

Bank Rakyat Indonesia (BBRI IJ) (Buy) - Conservative stance

Banks NS EW 336 24th Dec, 2024

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Conservative stance

Lower TP to IDR5,400 (from IDR6,300)

In our recent note on BBRI, we wrote that the bank may face maturing micro/ultra-micro segments in coming years. This suggests that future growth will be structurally slower and thus, we think that BBRI may need to refocus growth in corp/commercial segments, at least in the medium term (~3 years). Moreover, we also anticipate larger write-offs for micro/ultra micro segments as well for 2024-26F. So far, we believe these may have been the primary reasons for substantial selling pressure in 2024 for the stock, which may persist in the near term. Going into 2025F, we think the bank will likely have a slower Kupedes disbursement (although the bank is still in discussion with the government to set the target for 2025). We anticipate 1) smaller KUR disbursement targets; and/or 2) potential changes in the insurance schemes, which could also mean some adjustments to the effective lending rates that BBRI could earn. Still, this may ease NPL pressures for the bank (excluding those write-offs that may be needed associated with past KUR disbursements made in the 2020-2022 period). Still, we think smaller KUR disbursement targets could provide greater earnings visibility for BBRI. However, in this report, we use more conservative earnings projections, which primarily reflect: 1) higher loan write-offs and hence higher credit cost assumptions (by 10-20bp for 2025-26F), as well as 2) lower loan growth projections of 7.5% pa for the 2025-26F period. These have translated into earnings forecast downgrades by 4-5% in 2025-26F. Refer to the figures inside for more details. We expect the stock might underperform other large Indonesian banks, but maintain our Buy rating. Having said that, we have seen more stable loan write-off trends (albeit still elevated). This suggests elevated credit costs in 2025-26F.

Valuation and risks We derive our TP of IDR5,400 based on DuPont analysis, with a risk-free rate of 6.5%, an equity risk premium of 7.8%, growth of 9.3% (cut from 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 2.5x 2025F book and 13.1x 2025F earnings. 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. Changes in management may affect the bank’s write-off policies and thus, credit costs. This would ultimately affect near term earnings for the bank.

Year-end 31 DecFY23FY24FFY25FFY26F
Currency (IDR)ActualOldNewOldNewOldNew
PPOP (bn)106,352115,175115,112120,977119,003126,757123,805
Reported net profit (bn)60,10061,84861,79964,59062,31367,23663,695
Normalised net profit (bn)60,10061,84861,79964,59062,31367,23663,695
FD normalised EPS398.24409.82409.49427.99412.90445.52422.06
FD norm. EPS growth (%)17.82.92.84.40.84.12.2
FD normalised P/E (x)10.2–9.9–9.8–9.6
Price/adj. book (x)2.0–1.9–1.8–1.7
Price/book (x)2.0–1.9–1.8–1.7
Dividend yield (%)7.8–7.9–8.1–8.1
ROE (%)19.719.419.419.418.819.318.5
ROA (%)3.13.03.02.92.82.72.6
Source: Company data, Verdhana estimates

Key data on Bank Rakyat Indonesia

Profit and loss (IDRbn)
Year-end 31 Dec
FY22
FY23
FY24F
FY25F
FY26F
Interest income
160,812
188,075
202,033
214,750
229,424
Interest expense
-34,637
-50,730
-51,345
-57,550
-62,978
Net interest income
126,174
137,345
150,688
157,200
166,446
Net fees and commissions
18,795
20,738
22,009
23,921
23,511
Trading related profits
2,650
2,301
2,250
2,000
2,000
Other operating revenue
25,858
22,906
22,000
21,000
20,000
Non-interest income
47,303
45,945
46,259
46,921
45,511
Operating income
173,477
183,290
196,947
204,121
211,957
Depreciation
-3,615
-3,726
-4,026
-4,266
-4,388
Amortisation
0
0
0
0
0
Operating expenses
-38,781
-35,362
-38,522
-40,352
-42,251
Employee share expense
-39,390
-37,850
-39,287
-40,500
-41,513
Pre-provision op profit
91,691
106,352
115,112
119,003
123,805
Provisions for bad debt
-27,385
-29,523
-36,472
-39,641
-42,614
Other provision charges
0
0
0
0
0
Operating profit
64,306
76,829
78,640
79,362
81,191
Other non-op income
291
-399
0
0
0
Associates & JCEs
0
0
0
0
0
Pre-tax profit
64,597
76,430
78,640
79,362
81,191
Income tax
-13,188
-16,005
-16,468
-16,619
-17,002
Net profit after tax
51,408
60,425
62,172
62,743
64,189
Minority interests
-238
-325
-374
-430
-495
Other items
0
0
0
0
0
Preferred dividends
0
0
0
0
0
Normalised NPAT
51,170
60,100
61,799
62,313
63,695
Extraordinary items
0
0
0
0
0
Reported NPAT
51,170
60,100
61,799
62,313
63,695
Dividends
-35,028
-47,558
-48,102
-49,439
-49,850
Transfer to reserves
16,142
12,541
13,696
12,874
13,844
Growth (%)
Net interest income
9.6
8.9
9.7
4.3
5.9
Non-interest income
14.8
-2.9
0.7
1.4
-3.0
Non-interest expenses
0.5
-8.8
8.9
4.8
4.7
Pre-provision earnings
19.2
16.0
8.2
3.4
4.0
Net profit
66.4
17.5
2.8
0.8
2.2
Normalised EPS
66.4
17.8
2.8
0.8
2.2
Normalised FDEPS
66.4
17.8
2.8
0.8
2.2
Loan growth
9.5
12.9
5.1
8.0
7.7
Interest earning assets
10.4
4.1
8.4
10.1
10.6
Interest bearing liabilities
12.6
4.6
9.0
11.8
11.8
Asset growth
11.2
5.3
7.8
10.0
10.2
Deposit growth
14.9
3.9
7.5
12.5
12.5
Source: Company data, Verdhana estimates
Balance sheet (IDRbn)
As at 31 Dec
FY22
FY23
FY24F
FY25F
FY26F
Cash and equivalents
27,407
31,604
34,831
39,185
44,083
Inter-bank lending
0
0
0
0
0
Deposits with central bank
150,935
101,909
112,316
126,355
142,150
Total securities
381,257
364,605
435,997
496,846
577,149
Other int earning assets
91,870
87,545
90,259
106,076
124,453
Gross loans
1,134,313
1,260,852
1,317,528
1,416,343
1,522,568
Less provisions
-88,324
-79,924
-76,396
-76,037
-78,651
Net loans
1,045,989
1,180,927
1,241,132
1,340,306
1,443,917
Long-term investments
6,507
7,305
437
599
796
Fixed assets
55,216
59,678
60,652
61,386
57,097
Goodwill
0
0
0
0
0
Other intangible assets
0
0
0
0
0
Other non IEAs
106,458
131,433
142,520
158,272
175,994
Total assets
1,865,639
1,965,007
2,118,144
2,329,026
2,565,639
Customer deposits
1,307,884
1,358,329
1,460,203
1,642,729
1,848,070
Bank deposits, CDs, debentures
82,944
80,675
117,677
132,387
148,935
Other int bearing liabilities
79,873
99,347
99,347
99,347
99,347
Total int bearing liabilities
1,470,701
1,538,352
1,677,228
1,874,463
2,096,352
Non-int bearing liabilities
91,543
110,183
110,374
110,717
111,102
Total liabilities
1,562,244
1,648,535
1,787,602
1,985,179
2,207,454
Minority interest
4,101
5,109
5,483
5,913
6,407
Common stock
83,215
83,431
83,431
83,431
83,431
Preferred stock
0
0
0
0
0
Retained earnings
201,170
213,711
227,408
240,282
254,126
Reserves for credit losses
0
0
0
0
0
Proposed dividends
0
0
0
0
0
Other equity
14,909
14,221
14,221
14,221
14,221
Shareholders' equity
299,294
311,364
325,060
337,934
351,778
Total liabilities and equity
1,865,639
1,965,007
2,118,144
2,329,026
2,565,639
Non-perf assets
30,405
37,386
41,125
44,209
47,525
Balance sheet ratios (%)
Loans to deposits
86.7
92.8
90.2
86.2
82.4
Equity to assets
16.0
15.8
15.3
14.5
13.7
Asset quality & capital
NPAs/gross loans (%)
2.7
3.0
3.1
3.1
3.1
Bad debt charge/gross loans (%)
2.41
2.34
2.77
2.80
2.80
Loss reserves/assets (%)
4.73
4.07
3.61
3.26
3.07
Loss reserves/NPAs (%)
290.5
213.8
185.8
172.0
165.5
Tier 1 capital ratio (%)
16.5
17.4
15.2
14.3
16.4
Total capital ratio (%)
17.2
18.2
16.1
15.1
17.1
Per share
Reported EPS (IDR)
338.01
398.33
409.58
412.99
422.15
Norm EPS (IDR)
338.01
398.33
409.58
412.99
422.15
FD norm EPS (IDR)
337.96
398.24
409.49
412.90
422.06
DPS (IDR)
231.38
315.20
318.81
327.67
330.39
PPOP PS (IDR)
605.67
704.87
762.93
788.72
820.55
BVPS (IDR)
1,977.02
2,063.64
2,154.41
2,239.74
2,331.49
ABVPS (IDR)
1,977.02
2,063.64
2,154.41
2,239.74
2,331.49
NTAPS (IDR)
1,977.02
2,063.64
2,154.41
2,239.74
2,331.49
Valuations and ratios
Reported P/E (x)
12.0
10.2
9.9
9.8
9.6
Normalised P/E (x)
12.0
10.2
9.9
9.8
9.6
FD normalised P/E (x)
12.0
10.2
9.9
9.8
9.6
Dividend yield (%)
5.7
7.8
7.9
8.1
8.1
Price/book (x)
2.1
2.0
1.9
1.8
1.7
Price/adjusted book (x)
2.1
2.0
1.9
1.8
1.7
Net interest margin (%)
7.80
7.93
8.19
7.81
7.50
Yield on assets (%)
9.94
10.86
10.98
10.68
10.33
Cost of int bearing liab (%)
2.50
3.37
3.19
3.24
3.17
Net interest spread (%)
7.45
7.49
7.78
7.43
7.16
Non-interest income (%)
27.3
25.1
23.5
23.0
21.5
Cost to income (%)
47.1
42.0
41.6
41.7
41.6
Effective tax rate (%)
20.4
20.9
20.9
20.9
20.9
Dividend payout (%)
68.5
79.1
77.8
79.3
78.3
ROE (%)
17.4
19.7
19.4
18.8
18.5
ROA (%)
2.89
3.14
3.03
2.80
2.60
Operating ROE (%)
21.9
25.2
24.7
23.9
23.5
Operating ROA (%)
3.63
4.01
3.85
3.57
3.32
Source: Company data, Verdhana estimates
Company profilePT Bank Rakyat Indonesia (Persero) Tbk (BBRI IJ) is one of the largest banks in Indonesia. It specialises in small scale and microfinance style borrowing and lending.
Valuation MethodologyWe derive our TP of IDR5,400 using Dupont methodology, with key parameters as follows: a risk-free rate of 6.5%, an equity risk premium of 7.8%, beta of 0.8x, and a CAR-adj ROAE of 18.0%. We have also used 2025F book as reference. Our TP implies 2.5x FY25F P/B and 13.1x FY25F P/E. The benchmark for the stock is the JCI.
Risks that may impede the achievement of the target priceKey downside risks to our call are: 1) worsening economic trends, 2) unfavorable regulatory changes, 3) tighter liquidity competition which could increase funding costs, 4) worsening credit quality which would raise credit costs, and/or 4) higher opex.
ESGBRI has launched various activities and programs in its contribution towards the global commitments and the national objectives as stipulated in the Presidential Regulation Number 59 year 2017 which regulates the Implementation of the Sustainable Development Goals. BRI is the Chair of the Indonesian Sustainable Finance Initiative (IKBI) which aims to help the government’s efforts to achieve the SDGs. BRI prioritizes customers that offer environmentally friendly products / have environmental certifications. BRI collaborates with Bank Indonesia and the Indonesian Economic and Trade Office (Kantor Dagang dan Ekonomi Indonesia - KDEI) in Taiwan to organize education sessions for Indonesian migrant workers on theimportance of cashless remittance transfers. BRI collaborates / actively participates in programs at community, national- and global- levels to enhance the development of sustainable finance. These programs including METI, CDP Pilot Project, UNDP, ADLIGHT, NPAP and CASE Programs.
Fig. 1: BBRI earnings changes

Source: Company data, Verdhana estimates

 

Fig. 2: BBRI loan and deposit

Source: Company data, Verdhana research

 

Fig. 3: BBRI loan classification

Source: Company data, Verdhana research

 

Fig. 4: BBRI ratios

Source: Company data, Verdhana research

 

Fig. 5: 3MMA Micro DG to NPL % of total loans

Source: Company data, Verdhana research
Fig. 6: 3MMA Micro DG to SML % of total loans

Source: Company data, Verdhana research

 

Fig. 7: BBRI valuation

BBRI - TP derivation 2025F Remarks 
 Risk free rate %                6.5  
 Equity risk premium %                7.8  
 Beta (x)                0.8From 0.8x 
 Cost of equity %               12.7From 12.7%
 Normalised growth %                9.3From 10.0%
 CAR-adj ROAE %               18.0From 18.0%
 Target 12-mth fwd PB                2.5using 2025F as reference
 Implied 12-mth fwd PE               13.1  
 Implied share price (IDR rounded)             5,377Rounded to IDR5,400 (from IDR6,300)
Source: Company data, Verdhana estimates

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 6,300
IDR 5,400
Closing price
20 December 2024
IDR 4,060
Implied upside+33.0%
Market Cap (USD mn)37,626.7
ADT (USD mn)81.6

Relative performance chart

Source: LSEG, Verdhana
M cap (USDmn)
37,626.7
Free float (%)
43.3
3-mth ADT (USDmn)
81.6
(%)
1M
3M
12M
Absolute (IDR)
-6.2
-24.5
-26.8
Absolute (USD)
-8.1
-29.3
-29.9
Rel to Jakarta Stock Exchange Composite Index
-3.5
-14.7
-23.6

Research Analysts

Nicholas Santoso (nicholas.santoso@verdhana.id)

Erwin Wijaya  (erwin.wijaya@verdhana.id)

Tags: Banks, BBRI, BBRI JK, BBRI IJ, Nicholas Santoso, Erwin Wijaya
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