Solid performance continues despite low CoC as driver

BRIS continued to deliver solid 3Q24 bottom line performance with the numbers coming in largely in-line with our projections. The bank reported net profit of IDR1.7tn (+2% q-q; +24% y-y), bringing 9M24 profits to IDR5.1tn (+22% y-y), representing 76% of our FY24F projection. At the operating level, the bank reported 9M24 net financing income of IDR13.5tn (+5% y-y) and PPOP of IDR8.5tn (+8% y-y), a relatively soft result likely attributable to lack of asset yields’ repricing (which is at 6.8% or flat y-y), while funding expenses increased (rising to 2.5% or +14bp y-y). Lack of repricing for financings (i.e. loans for conventional banks) have been the trend across most Indonesia banks under our coverage. We attribute these to financing (or lending) competition as well as tight liquidity. This translates to NFM (or NIM) of 5.6% (-33bp y-y). Having said that, we think in 4Q24F, funding costs could improve, driven by potential rate reduction by the BI as well as net reduction in SRBIs (giving room for liquidity improvement in the system). Among major banks, we think BRIS has proportionally more fixed-yielding earnings assets than most conventional banks. We estimate ~55-60% of total financings are fixed-yielding in nature. Further out, we expect BRIS to continue delivering higher financing growth than the sector average and with stabilizing funding costs to reduce pressure on NFM. These will be key earnings drivers in the medium term for the bank. Meanwhile, we expect asset quality to improve further, which could potentially lower provisions expense (CoC), as we have seen in its 3Q24 results. Hence, we reiterate our Buy rating on the stock with a TP of IDR3,800.

3Q24 result summary:

● 3Q24 Net financing/margin income (NFI) stood at IDR4.7tn (+6% q-q and +8% y-y), bringing 9M24 NFI to IDR13.5tn (+5% y-y) and accounting for 75% of our FY24F projections. The y-y growth primarily came from: 1) higher 3Q24 margin income of IDR6.7tn (+5% q-q; +14% y-y) (and therefore higher 9M24 margin income of IDR19.3tn [+12% y-y}); and 2) stabilizing funding costs of ~2.2-2.6% in the past 12 months (which enabled it to have one of the lowest funding costs amongst Indonesia banks under our coverage). We attribute BRIS’ low funding costs to the bank’s dominant position in the sharia banking. It is also the main transactional bank in the sharia banking space.

● Meanwhile, 3Q24 PPOP rose to IDR2.8tn (+1% q-q; +16% y-y), bringing 9M24 PPOP to IDR8.5tn (+8% y-y) accounting for 72% of our FY24F projections. Combined with the lower 3Q24 provision expense of 0.9% (vs 1.1% in 3Q23), the bank’s 3Q24 net profit reached IDR1.7tn (+2% q-q; +24% y-y), bringing 9M24 profits to IDR5.1tn (+22% y-y) and accounting for 76% of our FY24F projections. Thus, we think BRIS is on track to deliver FY24 results that could meet if not exceed our FY24F projections. Overall, the implied ROAA stood at a strong 1.9% (+13bp y-y), with ROAE of 16.1% (+100bp y-y).

● On the balance sheet, BRIS booked financing growth of 15% y-y, higher than the sector growth. On funding, the bank reported financing (deposits) growth of 15% y-y. This implies LFR of 83.3% (+100bp q-q: flat y-y), still relatively considerable compared to the broader banking sector in Indonesia.

Valuation and Risks

We derive our TP of IDR3,800 using DuPont methodology, with key parameters as follows: a risk-free rate of 6.5%, an equity risk premium of 7.8%, beta of 1.2x and a CAR-adjusted ROAE of 18.1%. We have also used 2025F book value in deriving our TP. Our TP implies a FY25F P/B of 3.3x and a FY25F P/E of 22.0x. Risks are worsening macroeconomic trends, unfavorable regulatory changes, tighter liquidity competition that could increase funding costs, worsening credit quality that could raise credit costs, material management changes, and/or persistently high opex.

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. 

Nicholas Santoso (nicholas.santoso@verdhana.id) 

Erwin Wijaya (erwin.wijaya@verdhana.id)