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Bank Rakyat Indonesia (BBRI IJ) (Buy) - Slow growth outlook

Bank Rakyat Indonesia (BBRI IJ) (Buy) - Slow growth outlook

Banks EW 318 13th Feb, 2025

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Slow growth outlook

Maintain Buy with lower TP of IDR5,000

Large write-offs for micro/ultra micro loans likely to continue

We believe BBRI will still face the issue of maturing micro/ultra-micro loans. Given the still sluggish micro deposits growth (~2% pa), growth in micro lending is likely to continue slowing and thus, we think BBRI would have to re-focus on the corporate /commercial segments, at least in the medium term (~3-years). We acknowledge not all market watchers would agree with this view, given the typically low margin/profitability of these segments and thus lower ROAEs. We also expect the large write-offs for micro/ultra micro loans to continue in 2025-26F. We believe these might have been the primary reasons for the stock substantial selling pressure in 2024F, and that BBRI share price could continue to underperform near term. We think BBRI will have elevated credit costs (CoC) at 3.20% in 2025-27F. Normalized CoC too will likely be higher than the pre-COVID (i.e. FY18-19) average 2.20% because of the Permodalan Nasional Madani (PNM, unlisted) consolidation.

Cut FY25-26F earnings estimates

Post the FY24 results, we believe a more conservative earnings projection is warranted, primarily to reflect: 1) higher loan write-offs and hence higher credit cost assumption (up by 30bp to 3.20% for 2025-26F); and 2) soft loan growth; we project 7.5% p.a. for 2025-26F. We also raise our payout ratio assumption to 85.0% (from 80.0%). These translate to earnings cuts of 3-4% in 2025-26F. We add a new forecast year, FY27F.

Post these downgrades, we expect the stock to continue to underperform Indonesia’s broader index, primarily reflecting concerns as highlighted above. Having said that, we have seen more stable loan write-off trends (albeit still elevated) which would suggest limited downside to earnings. We lower our TP to IDR5,000 (from IDR5,400).   

Valuation and risks

Our new TP of IDR5,000 is based on DuPont analysis, with a risk-free rate of 6.5%, an equity risk premium of 7.8% (unchanged), growth of 9.3% (unchanged), beta 0.85x (up from 0.8x) and a CAR-adjusted ROAE of 18.0% (unchanged). We also use 2025F book as reference. The implied multiples at our TP would be 2.3x 2025F book and 12.5x 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 the bank’s near-term earnings.

Year-end 31 DecFY24FY25FFY26FFY27F
Currency (IDR)ActualOldNewOldNewOldNew
PPOP (bn)120,336119,003119,142123,805123,3910128,669
Reported net profit (bn)60,15562,31360,26863,69560,996062,342
Normalised net profit (bn)60,15562,31360,26863,69560,996062,342
FD normalised EPS398.60412.90399.35422.06404.18413.19
FD norm. EPS growth (%)0.10.80.22.21.22.2
FD normalised P/E (x)10.1–10.1–10.0–9.8
Price/adj. book (x)1.9–1.8–1.8–1.7
Price/book (x)1.9–1.8–1.8–1.7
Dividend yield (%)7.8–8.4–8.4–8.5
ROE (%)19.118.818.518.518.017.8
ROA (%)3.02.82.92.62.82.7
Source: Company data, Verdhana estimates

Key data on Bank Rakyat Indonesia

Profit and loss (IDRbn)
Year-end 31 Dec
FY23
FY24
FY25F
FY26F
FY27F
Interest income
188,075
208,027
217,745
230,670
241,583
Interest expense
-50,730
-62,719
-64,122
-68,990
-73,009
Net interest income
137,345
145,308
153,623
161,680
168,575
Net fees and commissions
20,738
20,475
20,205
21,720
23,349
Trading related profits
2,301
3,397
2,688
2,688
2,688
Other operating revenue
22,906
30,689
25,000
22,500
22,500
Non-interest income
45,945
54,561
47,893
46,908
48,537
Operating income
183,290
199,869
201,516
208,588
217,112
Depreciation
-3,726
-5,843
-6,065
-6,235
-6,242
Amortisation
0
0
0
0
0
Operating expenses
-35,362
-34,506
-36,021
-37,796
-40,137
Employee share expense
-37,850
-39,184
-40,287
-41,166
-42,063
Pre-provision op profit
106,352
120,336
119,142
123,391
128,669
Provisions for bad debt
-29,523
-41,758
-43,104
-46,337
-49,812
Other provision charges
0
0
0
0
0
Operating profit
76,829
78,578
76,038
77,054
78,857
Other non-op income
-399
-979
0
0
0
Associates & JCEs
0
0
0
0
0
Pre-tax profit
76,430
77,599
76,038
77,054
78,857
Income tax
-16,005
-16,955
-15,208
-15,411
-15,771
Net profit after tax
60,425
60,644
60,830
61,643
63,086
Minority interests
-325
-489
-562
-647
-744
Other items
0
0
0
0
0
Preferred dividends
0
0
0
0
0
Normalised NPAT
60,100
60,155
60,268
60,996
62,342
Extraordinary items
0
0
0
0
0
Reported NPAT
60,100
60,155
60,268
60,996
62,342
Dividends
-47,558
-47,584
-51,132
-51,228
-51,847
Transfer to reserves
12,541
12,571
9,136
9,769
10,495
Growth (%)
Net interest income
8.9
5.8
5.7
5.2
4.3
Non-interest income
-2.9
18.8
-12.2
-2.1
3.5
Non-interest expenses
-8.8
-2.4
4.4
4.9
6.2
Pre-provision earnings
16.0
13.1
-1.0
3.6
4.3
Net profit
17.5
0.1
0.2
1.2
2.2
Normalised EPS
17.8
0.1
0.2
1.2
2.2
Normalised FDEPS
17.8
0.1
0.2
1.2
2.2
Loan growth
12.9
7.8
3.3
7.5
7.1
Interest earning assets
4.1
3.0
8.5
6.5
6.5
Interest bearing liabilities
4.6
1.8
8.7
6.9
7.0
Asset growth
5.3
1.4
7.7
6.0
6.1
Deposit growth
3.9
0.5
7.5
7.5
7.5
Source: Company data, Verdhana estimates
Balance sheet (IDRbn)
As at 31 Dec
FY23
FY24
FY25F
FY26F
FY27F
Cash and equivalents
31,604
29,784
37,147
39,933
42,928
Inter-bank lending
0
0
0
0
0
Deposits with central bank
101,909
88,879
110,851
119,165
128,103
Total securities
364,605
343,323
418,393
428,063
443,325
Other int earning assets
87,545
83,448
90,876
98,696
107,225
Gross loans
1,260,852
1,350,480
1,395,692
1,500,369
1,612,897
Less provisions
-79,924
-76,903
-79,559
-85,448
-97,182
Net loans
1,180,927
1,273,577
1,316,133
1,414,921
1,515,714
Long-term investments
7,305
8,077
445
502
566
Fixed assets
59,678
62,478
61,413
55,277
49,135
Goodwill
0
0
0
0
0
Other intangible assets
0
0
0
0
0
Other non IEAs
131,433
103,418
111,857
119,178
127,048
Total assets
1,965,007
1,992,983
2,147,113
2,275,734
2,414,043
Customer deposits
1,358,329
1,365,450
1,467,859
1,577,948
1,696,294
Bank deposits, CDs, debentures
80,675
72,226
105,898
113,840
122,378
Other int bearing liabilities
99,347
128,372
128,372
128,372
128,372
Total int bearing liabilities
1,538,352
1,566,047
1,702,128
1,820,160
1,947,044
Non-int bearing liabilities
110,183
103,747
103,908
104,082
104,268
Total liabilities
1,648,535
1,669,794
1,806,037
1,924,242
2,051,312
Minority interest
5,109
6,095
6,657
7,304
8,048
Common stock
83,431
83,458
83,458
83,458
83,458
Preferred stock
0
0
0
0
0
Retained earnings
213,711
218,093
235,418
245,187
255,682
Reserves for credit losses
0
0
0
0
0
Proposed dividends
0
0
0
0
0
Other equity
14,221
15,543
15,543
15,543
15,543
Shareholders' equity
311,364
317,094
334,419
344,188
354,683
Total liabilities and equity
1,965,007
1,992,983
2,147,113
2,275,734
2,414,043
Non-perf assets
37,386
38,102
43,564
46,832
50,344
Balance sheet ratios (%)
Loans to deposits
92.8
98.9
95.1
95.1
95.1
Equity to assets
15.8
15.9
15.6
15.1
14.7
Asset quality & capital
NPAs/gross loans (%)
3.0
2.8
3.1
3.1
3.1
Bad debt charge/gross loans (%)
2.34
3.09
3.09
3.09
3.09
Loss reserves/assets (%)
4.07
3.86
3.71
3.75
4.03
Loss reserves/NPAs (%)
213.8
201.8
182.6
182.5
193.0
Tier 1 capital ratio (%)
17.4
15.2
15.0
17.6
19.4
Total capital ratio (%)
18.2
16.1
15.7
18.3
20.2
Per share
Reported EPS (IDR)
398.33
398.69
399.44
404.27
413.19
Norm EPS (IDR)
398.33
398.69
399.44
404.27
413.19
FD norm EPS (IDR)
398.24
398.60
399.35
404.18
413.19
DPS (IDR)
315.20
315.38
338.89
339.52
342.48
PPOP PS (IDR)
704.87
797.55
789.64
817.80
852.79
BVPS (IDR)
2,063.64
2,101.62
2,216.44
2,281.19
2,342.90
ABVPS (IDR)
2,063.64
2,101.62
2,216.44
2,281.19
2,342.90
NTAPS (IDR)
2,063.64
2,101.62
2,216.44
2,281.19
2,342.90
Valuations and ratios
Reported P/E (x)
10.1
10.1
10.1
10.0
9.8
Normalised P/E (x)
10.1
10.1
10.1
10.0
9.8
FD normalised P/E (x)
10.1
10.1
10.1
10.0
9.8
Dividend yield (%)
7.8
7.8
8.4
8.4
8.5
Price/book (x)
2.0
1.9
1.8
1.8
1.7
Price/adjusted book (x)
2.0
1.9
1.8
1.8
1.7
Net interest margin (%)
7.93
8.11
8.10
7.94
7.77
Yield on assets (%)
10.86
11.60
11.48
11.32
11.14
Cost of int bearing liab (%)
3.37
4.04
3.92
3.92
3.88
Net interest spread (%)
7.49
7.56
7.56
7.41
7.26
Non-interest income (%)
25.1
27.3
23.8
22.5
22.4
Cost to income (%)
42.0
39.8
40.9
40.8
40.7
Effective tax rate (%)
20.9
21.8
20.0
20.0
20.0
Dividend payout (%)
79.1
79.1
84.8
84.0
83.2
ROE (%)
19.7
19.1
18.5
18.0
17.8
ROA (%)
3.14
3.04
2.91
2.76
2.66
Operating ROE (%)
25.2
25.0
23.3
22.7
22.6
Operating ROA (%)
4.01
3.97
3.67
3.48
3.36
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 IDR5,000 based on DuPont analysis with a risk-free rate of 6.5%, an equity risk premium of 7.8%, growth of 9.3%, beta 0.85x and a CAR-adjusted ROAE of 18.0%. We have also used 2025F book as reference. The implied multiples at our TP would be 2.3x 2025F book and 12.5x 2025F earnings. The benchmark for the stock is the JCI.
Risks that may impede the achievement of the target priceDownside 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.
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 - loans and deposits
Source: Company data, Verdhana estimates

 

Fig. 3: BBRI - valuation
BBRI - TP derivation 2025F Remarks 
 Risk free rate %                6.5  
 Equity risk premium %                7.8  
 Beta (x)              0.85Up from 0.80x
 Cost of equity %              13.1  
 Normalised growth %                9.3  
 CAR-adj ROAE %              18.0  
 Target 12-mth fwd PB                2.3using 2025F as reference
 Implied 12-mth fwd PE              12.5  
 Implied share price (IDR rounded)            4,976Rounded to IDR5,000 (from IDR5,400)
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 5,400
IDR 5,000
Closing price
12 February 2025
IDR 4,030
Implied upside+24.1%
Market Cap (USD mn)36,960.6
ADT (USD mn)65.3

Relative performance chart


Source: LSEG, Verdhana
M cap (USDmn)
36,960.6
Free float (%)
43.3
3-mth ADT (USDmn)
65.3
(%)
1M
3M
12M
Absolute (IDR)
0.5
-10.4
-33.1
Absolute (USD)
-0.6
-13.6
-36.3
Rel to Jakarta Stock Exchange Composite Index
8.4
0.3
-22.6

Research Analysts

Erwin Wijaya (erwin.wijaya@verdhana.id)

Tags: BANKS, BBRI, BBRI JK, BBRI IJ, Erwin Wijaya
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