Bank Syariah Indonesia (BRIS IJ) (Buy) - YTD Oct-24 results: In line with our projections

YTD Oct-24 results: In line with our projections

BRIS has released its YTD Oct-24 results, which came in largely in line with our projections. Headline net profit for Oct-24 was IDR532bn (-16% m-m; +17% y-y), bringing YTD Oct-24 profit to IDR5.6tn (+21% y-y) – accounting for 84% of our FY24F profit estimate of IDR6.7tn. At the operating level, the bank recorded net interest income (NII) of IDR1.6tn (-6% m-m; +14% y-y), implying YTD Oct-24 NII of IDR15tn (+5% y-y) and accounting for 83% of our FY24F estimate. Meanwhile, Oct-24 PPOP came in at IDR867bn (-17% m-m; +24% y-y), bringing YTD Oct-24 PPOP to IDR9.2tn (+9% y-y) – representing 78% of our FY24F estimate. Refer to Fig. 1 for BRIS’s P&L details.

The rise in NII can be attributed to a slight improvement in the bank’s asset yields to 7.5% (-40bp m-m; +20bp y-y), which brought YTD Oct-24 yields to 7.3% (a mere -20bp drop y-y). Financing costs (CoF) too remained stable over the past 12 months at 2.6%, +40bp y-y, resulting in net financing margin (NFM) of ~5.1-5.2%. We attribute the bank’s stable financing costs to its improved CASA ratio, driven by both traditional syariah and wadiah banking. Specifically, we note the strong growth in traditional syariah and wadiah savings, which we believe is a reflection of 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 the balance sheet, the bank reported a financing jump of 17% y-y (+13% YTD Oct-24) with financing deposit growth of +14% y-y (+2% YTD Oct-24 primarily reflecting a decline in time deposit of -3% YTD). This resulted in a financing-to-funding ratio (i.e. LDR) of 89.2% (+170bp m-m / +200bp y-y). YTD Oct-24, current and savings accounts have been the main growth drivers (+6% and +5% YTD, respectively) and wadiah savings have recorded growth of +19% y-y (+9% 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 Fig. 6, 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 Oct-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

Our TP of IDR3,800 is based on 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 to derive our TP. Our TP implies an FY25F P/B of 2.7x and an FY25F P/E of 17.8x. 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.