Bank Syariah Indonesia BRIS IJ -Buy- YTD Aug24 Tracking our projections

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YTD Aug24: Tracking our projections

BRIS has released its YTD Aug-24 results, which came in largely inline with our projections. Headline profit for Aug-24 only reached IDRIDR541bn (flat m-m / +17% y-y), bringing YTD Aug-24 profit to IDR4.5tr (+21% y-y) – accounting for 58% of our FY24F profit estimate of IDR6.3tr. At the operating level, the bank recorded net interest income (NII) of IDR1.5tr (+2% m-m / +13% y-y), implying YTD Aug-24 NII of IDR11.8tr (+4% y-y) and accounting for 57% of our FY24F estimates. Meanwhile, Aug-24 only PPOP reached IDR929bn (+14% m-m / +17% y-y), bringing YTD Aug-24 PPOP to IDR7.3tr (+5% y-y) – representing 54% of our FY24F estimates. Refer to chart #1 for BRIS’s P&L details.

The rise in NII can be attributed to the bank’s slight improvement in asset yields to 7.4% (+10bp m-m / y-y), which brought YTD Aug-24 yields to 7.4% (a mere -10bp y-y). Financing costs (CoF) too has been stable in the past 12 months at 2.6% (refer to chart #4 inside), up 40bp y-y, and resulting in a net financing margin (NFM) of ~5.1-5.2%.

We attribute the bank’s stable financing costs to improvement in its CASA ratio, driven by both traditional syariah and wadiah banking. Specifically, we note the strong growth in traditional syariah and wadiah savings, which should reflect the bank’s growing importance for individual/retail syariah customers. Both saving accounts are usually kept for a longer tenure than current account and time deposits – suggesting limited risks in the event of tight liquidity. With its CASA ratio at ~63%, BRIS’s financing costs have hovered at ~2.6%, making it one of the Indonesia banks under our coverage to have the lowest funding costs. On wadiah in particular, we see limited costs to attract cheap funding. Indeed, from YTD Aug24 results, total bonus wadiah paid was merely 80bp, lower than the overall financing costs (hovers ~3.5-3.8%) of Indonesia banks.

On balance sheet, the bank reported a financing jump of 14% y-y (+9% YTD Aug-24) with financing deposit growth of +16% y-y (+1% YTD Aug-24 primarily reflecting a decline in time deposit of -5% YTD). This resulted in a financing-to-funding ratio (i.e. LDR) of 86.6% (+140bp m-m / -150bp y-y). YTD Aug-24, savings have been the main growth driver (+3% YTD) and wadiah savings have recorded growth of +19% y-y (+7% YTD). We believe that saving accounts are a more secured long-term funding source for the bank.

In recent months, we note the bank has witnessed a stabilizing write-off trend. In our view, this suggests limited earnings risks from rising credit costs (CoC). As illustrated in chart #6 (last chart), we think BRIS management has taken a prudent approach to keep CoC elevated, thereby keeping its LLR ratio at 3.9% (largely flat in recent months).

Post the YTD Aug-24 results, we retain our Buy rating on the stock. There are still significant growth opportunities for the bank, not only from hajj and mosque ecosystems but also from gold businesses (both savings and lending).

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, unfavourable 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.