We previously highlighted that BBRI might face maturing micro/ultra-micro segments, which would hinder its growth. Hence we believe BBRI might have to re-focus growth in the corporate/commercial segments). Moreover, we anticipate a larger write-off for micro/ultra micro segments. Indeed, this has been the primary reason for BBRI’s flat y-y consolidated FY24 profit growth. Nonetheless, the bank’s operating results have been resilient, in our view, with headline FY24 PPOP jumping ~13% y-y (slightly ahead of our FY24 projections). Although PPOP was in part boosted by rising recoveries in 2024, we think management could provide some provision releases in FY25F, meaning profit could stay flat y-y. A slower Kupedes disbursement could also ease NPL pressure on the bank, in turn providing enhanced earnings visibility. In our view, these would be the key catalysts for the stock in the medium term.

In this report, we show both bank-only and consolidated FY24 results. We highlight bank-only FY24 profit showed encouraging growth of +3% y-y vs a flat y-y consolidated profit trend. Headline PPOP growth for bank-only was +13% y-y, vs consolidated PPOP growth at +13%. This suggests that CoC was high at the consolidated level, which we think came from BBRI’s unlisted subsidiary Permodalan Nasional Madani (PNM).

Post FY24 results, while we retain our Buy call on BBRI, we caution that it might continue to underperform relative to BBCA IJ (Buy) as the prospects ofBBRI’s mass-market segments might be inferior compared to BBCA’s corporate segments.   

FY24 consolidated results summary

In FY24, BBRI reported headline profit of IDR60.2tr (flat y-y), accounting for 97% of our FY24F earnings estimates. We highlight the large jump in credit costs (CoC) to IDR41.8tr (+41% y-y), which implies an annualized CoC of ~320bp. In our view, the steep increase in CoC could be attributed to front-loading loans write-off. Most of the write-offs were for the mass-market segments. In our opinion, the bank needed to “clean up” some of the excess lending made in 2022-2023, particularly for the mass-market segments (ultra-micro / micro / PNM). We believe that BBRI still has to write off more loans in 2025F-26F. However, the pace and amount of write-off should moderate as the bank and its subsidiaries are likely to continue tightening their loan underwriting criteria until its CoC comes down to a normalised level of ~2.5% from 2027F. Given the large write-offs, BBRI’s LAR dipped to 10.9% (-90bp q-q) as of end-4Q24 with coverage of ~61% (amongst the highest for major banks). Also, we note that in 2024, consolidated credit costs were “reduced” by a non-loan related credit cost reversal of ~IDR4.8tr. However, we think management still has discretion to “reallocate” excess provisions in some of the corp loans to “increase or maintain” its provisions for the micro/ultra micro segments. These would mitigate near-term earnings risks for the bank.

On balance sheet, the bank booked loans and deposits growth of +7% y-y and +1% y-y, respectively, as of end-2024– resulting in an elevated LDR of 99% (+600bp y-y). NPL stood at 2.6% (-20bp y-y) with coverage of 227% (flat y-y) as of end-2024. CAR remained healthy at 27% (largely flat y-y).

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%, 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, future credit costs. This would ultimately affect near-term earnings for the bank.

Fig. 1: BBRI – consolidated quarterly results

Fig. 2: BBRI – monthly bank-only results

Fig. 3: BBRI – bank-only and consolidated comparison

Fig. 4: BBRI – ratios

Fig. 5: BBRI – loan breakdown

Fig. 6: BBRI – micro vs micro KUR growth

Fig. 7: BBRI – Micro LDR

Fig. 8: BBRI – dupont % of assets

Fig. 9: BBRI – LLR vs 12MMA WO %

Fig. 10: 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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Erwin Wijaya (erwin.wijaya@verdhana.id)