BBRI has released its bank-only Aug-24 results which suggests potential for the bank to exceed our FY24F earnings projections. On a YTD Aug-24 basis, BBRI has continued to show resilient core results, despite recording elevated credit costs (suggesting that BBRI still has elevated loan write-off). Nonetheless, we believe its write-off trend has peaked, and credit costs may start to decline. BBRI management has maintained a prudent approach as the bank’s headline LLR (loan-loss reserve) rose 40bp m-m to 6.9% in Aug-24, the highest LLR among major Indonesia banks. Another notable development is the bank’s outstanding loans, which declined 6% m-m (-2% YTD / flat y-y), reflecting management’s shifted stance toward quality over volume. We attribute the sluggish loan growth to: 1) micro loan write-offs; and 2) tighter underwriting and thus lower micro loan disbursements.

Still, despite the above, BBRI has continued to deliver resilient core results. Headline Aug-24 profit reached IDR4.8tn (+51% m-m / +21% y-y). This brings YTD Aug-24 profit to IDR36.2tn (+4% y-y), which is largely on track to meet our FY24 projections (taking into account the consolidated numbers).

At the operating level, the bank’s headline Aug-24 NII of IDR9.3tn (flat m-m / -2% y-y) brings YTD Aug-24 NII to IDR73.6tn (+3% y-y). On a consolidated basis, we estimate BBRI’s key subsidiaries (Pegadaian and PNM [Permodalan Nasional Madani] – both unlisted) added NII by ~20% in Aug-24, given their much higher NIMs of ~20% (compared to BBRI’s bank-only NIM of ~6.6%). Aug-24 headline NIM of 6.6% (+20bp m-m) brings YTD Aug-24 NIM to 6.6% (flat y-y). We think with easing liquidity in the banking sector, partly driven by maturity of more SRBIs in 4Q24-2Q25, this should minimize earnings risks for BBRI. Headline PPOP for Aug-24 at IDR8.9tn (+16% m-m / +5% y-y) brings YTD Aug-24 PPOP to IDR71.4tn (+16% y-y).

However, in our opinion, the bank still needs to keep elevated credit costs (CoC) to beef up its LLR to accommodate the excess lending made in micro, particularly during 2023 (when micro growth was well above micro deposit growth). The increase in CoC is necessary to accommodate some micro loan downgrades, in our view. Hence, the bank’s CoC reached 2.7% in Aug-24 (bringing YTD Aug-24 CoC to 3.4%, well above management’s current guidance of <3.0% for FY24, but off the peak of 6.7% in Jan-24). This suggests 2025F CoC could dip below 3.0%, boosting its profit trajectory. The bank’s prudent approach has led to LLR of 6.9%, the highest among major banks, suggesting limited earnings risks going into 2025F, in our view.

Admittedly, monthly results can be volatile; and thus, in this report, from time to time, we look at the bank’s 12-month moving average (12MMA) to give us a better understanding of the bank’s latest trends in several areas. Further details on the results are shown in the following tables and charts inside this report.  

Valuation and risks

We derive our TP of IDR6,300 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 2025F book as reference. The implied multiples at our TP would be 2.9x 2025F book and 14.8x 2025F earnings (compared to current multiples of 2.1x and 11.1x, 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. 3: BBRI - NIM trend %

Fig. 4: BBRI - CoF %

Fig. 5: BBRI - CoC vs Est WO %

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

Fig. 7: BBRI - 12MMA Loan vs NII growth %

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 
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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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Nicholas Santoso (nicholas.santoso@verdhana.id) 

Erwin Wijaya (erwin.wijaya@verdhana.id)