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Bank Rakyat Indonesia (BBRI IJ) (Buy) - Soft Jan-25 results hit by large CoC

Bank Rakyat Indonesia (BBRI IJ) (Buy) - Soft Jan-25 results hit by large CoC

Banks EW 143 3rd Mar, 2025

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Soft Jan-25 results hit by large CoC

Maintain Buy with TP of IDR5,000

BBRI kicked off 2025 with soft bank-only results. This was due to a large jump in the cost of credit (CoC) to ~5.5% (annualized) – from 2.0% in Jan-24 and ~3.2% in FY24. The increase in CoC is attributable to a higher rate of restructured loan downgrades, according to management, reaching ~35-40%, up from ~30% in 3Q24. The signs of rising downgrades were evident in Dec-24, albeit partially obscured by reversals from non-loan related provisions. BBRI suggested that in 1Q25, CoC could settle at around 3.5%, which is higher than its FY25 guidance of ~3.2%. At present, we believe that the risk of higher CoC persists. Hence, we have made earnings estimate cuts for FY25-27F by 1-3%, assuming a higher CoC of 5-10bps to 3.25-3.35%. A higher CoC allows the bank to increase write-off rates, which we observed in Jan-25 (refer to charts inside).

We believe BBRI needs to “clean up” its excess lending made in 2022-23, mainly in the mass-market segments (ultra-micro / micro / Permodalan Nasional Madani [PNM, unlisted]), and more write-offs are expected in 2025-26F. However, we believe that the pace and amount of these write-offs should moderate as the bank and its subsidiaries continue to tighten their underwriting criteria before CoC normalizes to a level of ~2.8-3.0% from 2028F onwards.

Reported bank-only profit came in at IDR2.0tn (-58% m-m and y-y), way below our FY25F estimates. Hence, we expect the stock to continue underperforming BBCA / BMRI / BRIS (our top picks within the Indonesian banking sector). Pre-provision operating profit (PPOP) was IDR8.2tn (-3% m-m; -2% y-y). We expect that once the “clean-up” is completed, CoC will normalize, leading to improved earnings, and the normalized CoC is likely to exceed the pre-COVID average of 2.20% due to PNM consolidation. BBRI reported loan and deposit growth of +7% and -2% y-y. The deposit reduction came from time deposits (-13% y-y; while current and savings account ratio (CASA) was +5% y-y); loan-to-deposit ratio (LDR) stood at 88.9% (+520bp y-y; -50bp m-m), loan loss reserve (LLR) stood at 6.0% (+10bp m-m; -50bp y-y).

Valuation and risks

Our TP of IDR5,000 (unchanged) is based on DuPont analysis, with a risk-free rate of 6.5%, an equity risk premium of 7.8%, ROE growth of 9.3%, a beta of 0.85x and a CAR-adjusted ROAE of 18.0% (all remain unchanged). We also use 2025F book value as a reference. The implied multiples at our TP are 2.3x 2025F BVPS and 12.5x 2025F EPS. Downside risks include worsening macroeconomic trends, unfavorable regulatory changes and tighter liquidity competition which could increase funding costs. 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, in our view.

Year-end 31 DecFY24FY25FFY26FFY27F
Currency (IDR)ActualOldNewOldNewOldNew
PPOP (bn)120,336119,142119,149123,391123,431128,669128,748
Reported net profit (bn)60,15560,26858,65760,99660,45062,34261,783
Normalised net profit (bn)60,15560,26858,65760,99660,45062,34261,783
FD normalised EPS398.60399.35388.68404.18400.56413.19409.48
FD norm. EPS growth (%)0.10.2-2.51.23.12.22.2
FD normalised P/E (x)9.1–9.3–9.1–8.9
Price/adj. book (x)1.7–1.6–1.6–1.6
Price/book (x)1.7–1.6–1.6–1.6
Dividend yield (%)8.7–9.3–9.1–9.4
ROE (%)19.118.518.118.017.917.817.7
ROA (%)3.02.92.82.82.72.72.6
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
217,752
230,711
241,662
Interest expense
-50,730
-62,719
-64,122
-68,990
-73,009
Net interest income
137,345
145,308
153,630
161,720
168,654
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
201,523
208,629
217,191
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
119,149
123,431
128,748
Provisions for bad debt
-29,523
-41,758
-45,125
-47,061
-50,591
Other provision charges
0
0
0
0
0
Operating profit
76,829
78,578
74,024
76,370
78,158
Other non-op income
-399
-979
0
0
0
Associates & JCEs
0
0
0
0
0
Pre-tax profit
76,430
77,599
74,024
76,370
78,158
Income tax
-16,005
-16,955
-14,805
-15,274
-15,632
Net profit after tax
60,425
60,644
59,219
61,096
62,526
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
58,657
60,450
61,783
Extraordinary items
0
0
0
0
0
Reported NPAT
60,100
60,155
58,657
60,450
61,783
Dividends
-47,558
-47,584
-51,132
-49,859
-51,382
Transfer to reserves
12,541
12,571
7,525
10,591
10,400
Growth (%)
Net interest income
8.9
5.8
5.7
5.3
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
-2.5
3.1
2.2
Normalised EPS
17.8
0.1
-2.5
3.1
2.2
Normalised FDEPS
17.8
0.1
-2.5
3.1
2.2
Loan growth
12.9
7.8
3.2
7.5
7.1
Interest earning assets
4.1
3.0
8.4
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
418,770
429,866
445,758
Other int earning assets
87,545
83,448
90,908
98,845
107,427
Gross loans
1,260,852
1,350,480
1,395,692
1,500,369
1,612,897
Less provisions
-79,924
-76,903
-81,580
-88,193
-100,705
Net loans
1,180,927
1,273,577
1,314,112
1,412,176
1,512,191
Long-term investments
7,305
8,077
445
505
571
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
2,145,503
2,274,946
2,413,160
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
233,808
244,399
254,799
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
332,809
343,400
353,800
Total liabilities and equity
1,965,007
1,992,983
2,145,503
2,274,946
2,413,160
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
15.5
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
3.23
3.14
3.14
Loss reserves/assets (%)
4.07
3.86
3.80
3.88
4.17
Loss reserves/NPAs (%)
213.8
201.8
187.3
188.3
200.0
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
388.76
400.65
409.48
Norm EPS (IDR)
398.33
398.69
388.76
400.65
409.48
FD norm EPS (IDR)
398.24
398.60
388.68
400.56
409.48
DPS (IDR)
315.20
315.38
338.89
330.45
339.41
PPOP PS (IDR)
704.87
797.55
789.69
818.07
853.31
BVPS (IDR)
2,063.64
2,101.62
2,205.77
2,275.96
2,337.07
ABVPS (IDR)
2,063.64
2,101.62
2,205.77
2,275.96
2,337.07
NTAPS (IDR)
2,063.64
2,101.62
2,205.77
2,275.96
2,337.07
Valuations and ratios
Reported P/E (x)
9.1
9.1
9.3
9.1
8.9
Normalised P/E (x)
9.1
9.1
9.3
9.1
8.9
FD normalised P/E (x)
9.1
9.1
9.3
9.1
8.9
Dividend yield (%)
8.7
8.7
9.3
9.1
9.4
Price/book (x)
1.8
1.7
1.6
1.6
1.6
Price/adjusted book (x)
1.8
1.7
1.6
1.6
1.6
Net interest margin (%)
7.93
8.11
8.11
7.94
7.78
Yield on assets (%)
10.86
11.60
11.49
11.33
11.15
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
7.27
Non-interest income (%)
25.1
27.3
23.8
22.5
22.3
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
87.2
82.5
83.2
ROE (%)
19.7
19.1
18.1
17.9
17.7
ROA (%)
3.14
3.04
2.83
2.74
2.64
Operating ROE (%)
25.2
25.0
22.8
22.6
22.4
Operating ROA (%)
4.01
3.97
3.58
3.46
3.33
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%, ROE growth of 9.3%, a beta of 0.85x and a CAR-adjusted ROAE of 18.0%. We have also used 2025F book value as reference. The implied multiples at our TP are 2.3x 2025F BVPS and 12.5x 2025F EPS. The benchmark for the stock is the JCI.
Risks that may impede the achievement of the target priceDownside risks include worsening macroeconomic trends, unfavorable regulatory changes, tighter liquidity competition which could increase funding costs, and 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, in our view.
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 – bank-only results

 BBRI Bank-only IDR bn Jan-24Dec-24Jan-25m-my-yYTD 2025YTD 2024 y-y  % FY25F  FY25F 
 Interest income 13,86114,26712,995-9%-6%12,99513,861-6%6%217,752
 Interest expenses 4,2034,0994,074-1%-3%4,0744,203-3%6%64,122
 Net interest income 9,65710,1698,921-12%-8%8,9219,657-8%6%153,630
 Monthly PPOP 8,4358,5078,248-3%-2%8,2488,435-2%7%119,149
 Monthly provision exp 1,9501,2105,627365%188%5,6271,950188%12%45,125
 Monthly net profit 4,8224,8372,009-58%-58%2,0094,822-58%3%58,657
 MoM loan growth 0.9%-0.3%-0.5%       
 YoY loan growth 14.1%6.1%4.6%       
 YTD loan growth 0.9%6.1%-0.5%       
 MoM deposit growth 2.2%-1.9%0.0%       
 YoY deposit growth 13.1%0.6%-1.6%       
 YTD deposit growth 2.2%0.6%0.0%       
 LDR  83.6%89.4%88.9%       
 NIM (annualised) 6.7%7.0%6.2%  6.2%6.7%   
 LLR 6.5%5.9%6.0%  6.0%6.5%   
 CoC (annualised) 2.0%1.2%5.6%  5.6%2.0%   
 Risk-adj NIM % 5.3%6.2%2.3%  2.3%5.3%   
 CASA ratio 62%68%66%       
 CIR (annualised) 37%39%39%       
 B/S ROAE (annualised) 19.2%18.9%8.0%       
 B/S ROAA (annualised) 3.1%3.1%1.3%       
 Asset yield (annualised) 9.6%9.8%9.0%       
 COF (annualised) 3.4%3.3%3.3%       
 Leverage ratio x                    6.1                   6.1                   6.0       
 Cash ratio % 1.2%1.6%1.5%       
 LDR %                  83.7                 89.4                 88.9 
 Loan-to-CASA % 135.5%132.4%134.6%
Source: Company data, Verdhana estimates

 

Fig. 2: BBRI - B/S breakdown

 BBRI Earnings asset IDRbn Jan-24Dec-24Jan-25m-my-yYTD 2025YTD 2024
 Total        1,747,721       1,738,266       1,719,621-1%-2%-1%1%
 Placements w BI            127,819           122,469           117,627-4%-8%-4%-15%
 Placements with other banks               41,826             46,658             46,072-1%10%-1%13%
 Marketable Securities            357,840           310,948           309,8580%-13%0%6%
 Repo Securities              20,829             25,696             26,9645%29%5%3%
 Reverse Repo Securities              43,192             16,648               9,583-42%-78%-42%30%
 Loans and receivables        1,156,216       1,215,847       1,209,516-1%5%-1%1%
  
 Breakdown Jan-24Dec-24Jan-25
 Total                100.0               100.0               100.0
 Placements w BI                    7.3                   7.0                   6.8
 Placements with other banks                     2.4                   2.7                   2.7
 Marketable Securities                  20.5                 17.9                 18.0
 Repo Securities                    1.2                   1.5                   1.6
 Reverse Repo Securities                    2.5                   1.0                   0.6
 Loans and receivables                  66.2                 69.9                 70.3
 BBRI Funding IDRbn Jan-24Dec-24Jan-25m-my-yYTD 2025YTD 2024
 Total Assets        1,747,721       1,738,266       1,719,621-1%-2%-1%1%
 Deposits        1,381,851       1,360,134       1,360,1690%-2%0%2%
 Current accounts            336,955           375,906           366,816-2%9%-2%-3%
 Savings accounts            516,360           542,667           531,847-2%3%-2%-2%
 Time deposits            528,535           441,561           461,5075%-13%5%10%
 CASA           853,316          918,573          898,663-2%5%-2%-2%
 Loans/Securities             87,236            91,839            93,3512%7%2%-5%
 Equities           304,055          299,373          301,9661%-1%1%2%
  
 Breakdown % Jan-24Dec-24Jan-25  
 Total Assets                100.0               100.0               100.0  
 Deposits                  79.1                 78.2                 79.1
 Current accounts                  19.3                 21.6                 21.3
 Savings accounts                  29.5                 31.2                 30.9
 Time deposits                  30.2                 25.4                 26.8
 Loans/Securities                    5.0                   5.3                   5.4
 Equities                  17.4                 17.2                 17.6
Source: Company data, Verdhana research

 

Fig. 3: BBRI - CoC

Source: Company data, Verdhana research

 

Fig. 4: BBRI - LLR

Source: Company data, Verdhana research

 

Fig. 5: BBRI - LLR vs 12MMA WO %

Source: Company data, Verdhana research

 

Fig. 6: BBRI - 12MMA CoC vs 12MMA WO %

Source: Company data, Verdhana research

 

Fig. 7: BBRI - earnings changes

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.

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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
Remains
IDR 5,000
Closing price
27 February 2025
IDR 3,630
Implied upside+37.7%
Market Cap (USD mn)33,120.0
ADT (USD mn)66.3

Relative performance chart


Source: LSEG, Verdhana
M cap (USDmn)
33,120.0
Free float (%)
43.3
3-mth ADT (USDmn)
66.3
(%)
1M
3M
12M
Absolute (IDR)
-13.4
-17.5
-40.7
Absolute (USD)
-14.8
-20.1
-43.7
Rel to Jakarta Stock Exchange Composite Index
-3.9
-7.0
-29.8

Research Analysts

Erwin Wijaya (erwin.wijaya@verdhana.id)

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