Based on the Indonesia government’s latest 2025 budget, we think there will potentially be less exposure to KURs for BBRI (and hence more commercial-based Kupedes micro loans). This should be positive for the bank as Kupedes ROAAs are generally above/higher than KUR ROAAs. And when combined with likely eased downgrade/write-off risks in the next 12 months (as shown in tables inside), we expect reduced earnings risks for BBRI. In addition, expectations of BI cutting interest rate and issuing fewer SRBI should enable BBRI to register lower funding costs (and hence potentially better NIM trends or at least minimizing NIM risks). On the back of the above-mentioned attributes, we retain our Buy rating on the stock. The stock’s past three years relative underperformance vs other large-cap bank peers may also present limited downside risks.
The Indonesia government has released its 2025 budget, highlighting a cut in KUR-related interest rate subsidies to IDR38.3tn (-20% lower compared to 2024’s of IDR47.8tn). This should translate into a likely lower KUR loan disbursement target. Assuming no changes in the KUR loan scheme, which includes step-up interest rates that borrowers must pay to KUR lenders, we estimate BBRI’s target KUR disbursement could reach ~IDR220-230tn in 2025F. And given BBRI has traditionally accounted for approximately 60-70% of the nation’s KUR disbursement targets, we estimate that the bank may need to disburse KUR amounting to ~IDR150tn in 2025F. This would likely translate into lower KUR loan outstanding of ~IDR210tn from 1H24’s ~IDR223tn.
The final KUR loan scheme will be finalized by the government towards the end of the year prior to implementation in 2025. In our opinion, given the potentially higher insurance loan claims particularly related to KUR loans and thus slow or long claim payments, we think such insurance scheme should be adjusted and/or removed (after all the impact to the bank should be muted). If indeed this insurance premium payments related to KUR scheme are removed, BBRI could see higher gross yields for micro/ultra-micro KUR loans from 14.25% to 16.00% as the insurance costs should be borne by the government as opposed to BBRI. In our opinion, this should be a more realistic structure.
In this note, we also provide further details on BBRI’s mass-market loans trends in ticket sizes. While average loan ticket size per borrower rose to IDR36.6mn in 1H24, this is largely acceptable in our opinion as the increase should reflect borrowers’ business growth. We also show trends in performing portions of Loan-At-Risks (LARs) which should lend colour to the risks of further loan downgrades into NPLs (which would ultimately dictate credit costs for the bank). In short, after a pick up in micro/ultra micro’s LARs in 1Q24, we started to see a slight decline in LARs in 2Q24. More importantly, the outstanding performing loan portions for these LARs also showed declining trajectories in 2Q24. If these persist, BBRI’s credit costs (CoC) going into 2025F would have high potential to decline further, in turn minimizing earnings risks for the bank. Maintain Buy on the stock.
Valuation and risks
We derive our TP of IDR6,000 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 2024F book as reference. The implied multiples at our TP would be 2.8x 2024F book and 14.6x 2024F earnings (compared to current multiples of 2.0x and 10.7x, 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. 1: BBRI loan breakdown
BBRI - Loan breakdown IDRtr
2018
2019
2020
2021
2022
2023
1Q24
2Q24
QoQ
YoY
YTD
Micro / Ultra Micro
274.3
307.7
432.5
483.9
551.3
611.2
622.6
623.0
0.1
7.8
1.9
KUR
64.3
69.3
126.7
190.3
251.5
219.9
221.5
222.7
0.5
1.3
1.3
Kupedes
131.3
155.1
144.7
131.8
129.2
212.3
216.6
212.3
(2.0)
16.1
0.0
Briguna
78.7
83.2
79.9
74.9
68.9
64.3
62.5
61.2
(2.1)
(8.5)
(4.8)
Pegadaian
-
-
-
52.4
59.1
67.6
71.6
77.0
7.5
22.5
13.9
PNM
-
-
-
33.1
42.6
47.1
49.8
49.2
(1.2)
8.1
4.5
Total Micro / Ultra Micro
274.3
307.6
351.3
482.5
551.3
611.2
622.0
622.4
0.1
7.7
1.8
Total consolidated
833.7
903.1
1,020.1
1,042.9
1,139.1
1,266.4
1,308.7
1,336.7
2.1
11.2
5.6
Micro / Ultra Micro Breakdown %
2018
2019
2020
2021
2022
2023
1Q24
2Q24
KUR
23.4
22.5
36.1
39.4
45.6
36.0
35.6
35.8
Kupedes
47.9
50.4
41.2
27.3
23.4
34.7
34.8
34.1
Briguna
28.7
27.0
22.7
15.5
12.5
10.5
10.0
9.8
Pegadaian
-
-
-
10.9
10.7
11.1
11.5
12.4
PNM
-
-
-
6.9
7.7
7.7
8.0
7.9
Total Micro / Ultra Micro
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Source: Company data, Verdhana research
Fig. 2: BBRI mass market borrowers
BBRI - # of mass-mkt borrowers mn
2018
2019
2020
2021
2022
2023
1Q24
2Q24
Micro (incl Kupedes / KUR)
10
10.5
11.7
13.3
14.4
14.0
13.7
13.4
- KUR
5.5
5.7
7.5
9.8
10.9
8.8
8.5
8.3
- Kupedes
3.6
3.9
3.4
2.8
2.8
4.7
4.7
4.7
- Briguna
0.9
0.9
0.8
0.7
0.6
0.5
0.5
0.5
Pegadaian
6.6
7.0
7.7
7.8
7.7
PNM
13.3
14.4
15.2
15.2
15.0
Ticket sizes IDR mn
2018
2019
2020
2021
2022
2023
1Q24
2Q24
Micro (incl Kupedes / KUR)
27.4
30.0
31.6
31.8
32.6
35.2
36.1
36.6
- KUR
11.7
12.4
19.2
22.0
23.1
24.6
25.6
26.5
- Kupedes
36.5
41.4
39.6
42.5
46.1
46.2
46.1
45.2
- Briguna
87.4
92.4
94.0
99.9
114.8
116.9
125.0
122.4
Pegadaian
7.9
8.6
9.0
9.2
9.9
PNM
2.5
3.0
3.1
3.3
3.3
Source: Company data, Verdhana research
Fig. 3: NPL & LAR breakdown
NPLs Micros %
2018
2019
2020
2021
2022
2023
1Q24
2Q24
- KUR
1.10
0.50
1.00
0.90
2.40
2.40
2.30
- Kupedes
1.60
1.30
2.70
4.20
3.00
3.60
4.30
- Briguna
0.40
0.50
0.50
0.40
0.80
0.60
0.70
Total
1.20
0.80
1.50
1.70
2.50
2.70
2.90
LARs Micros %
2018
2019
2020
2021
2022
2023
1Q24
2Q24
- KUR
4.60
16.20
9.80
8.10
10.00
9.90
9.00
- Kupedes
9.50
48.50
41.10
27.90
14.40
16.70
17.50
- Briguna
4.00
5.60
5.90
5.50
3.80
4.00
3.70
Total
6.90
27.10
19.50
13.40
11.10
12.10
12.00
NPLs Consumers %
2018
2019
2020
2021
2022
2023
1Q24
2Q24
- Briguna Retail
0.70
0.90
1.10
1.10
1.20
1.30
1.30
- KPR
2.30
2.80
3.40
3.40
3.70
4.10
3.90
- Credit cards / Others
1.60
2.80
3.80
3.40
3.70
4.20
4.10
Total
1.10
1.50
1.80
1.80
2.00
2.20
2.10
LARs Consumers %
2018
2019
2020
2021
2022
2023
1Q24
2Q24
- Briguna Retail
2.70
4.00
3.60
3.90
3.10
3.10
2.90
- KPR
9.00
29.50
24.90
19.30
13.80
13.70
12.90
- Credit cards / Others
9.00
25.00
20.90
14.90
14.30
14.80
13.90
Total
4.50
11.30
9.80
8.60
6.60
6.60
6.20
LARs Micros Perf Loans IDRtr
2018
2019
2020
2021
2022
2023
1Q24
2Q24
- KUR
2.43
19.89
16.75
18.11
16.71
16.61
14.92
- Kupedes
12.25
68.30
50.61
30.62
24.20
28.37
28.02
- Briguna
3.00
4.07
4.04
3.51
1.93
2.13
1.84
Total
17.67
92.27
71.40
52.24
42.84
47.11
44.78
Source: Company data, Verdhana research
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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