Despite the persistent challenging macroeconomic backdrops, as we head into 2025F, we believe major Indonesia banks could improve their earnings profile. We think the overall liquidity in the banking system is likely to remain tight, as shown in Fig. 1, whereby LDRs for KBMI 4 and 3 banks (i.e., large and mid-large banks – predominantly the top 10 largest domestic banks) can be seen hovering above the system average of ~88%. That said, tight liquidity does not appear to worsen. We think many smaller-sized banks have not competed as aggressively as in the past two to three years. Consequently, we expect major banks could broadly retain their high quality loan growth.

In Fig 2, we provide outlooks for loan growth at the major banks respectively based on our recent discussions with these banks. Both BMRI and BBCA appear to have projected lower loan growth in 2025 than 2024’s. These are expected owing to their respective YTD October 2024 y-y loan growth were above system-wides. Most notably, BBCA is expecting much lower loan growth in 2025 than it had in 2024, to the extent that its projected growth would be inferior to projected system growth (from BI).

Despite more prudent loan growth, based on our assumptions, we believe earnings risks for these banks would be muted. This is based on our expectations that their NIMs for 2025F are likely to be more stable than in 2024’s (i.e., with more stable NIMs, banks need not drive loan growth to compensate for lower NIMs). Overall, this is likely to result in improved earnings profiles for these banks (excluding BBRI, which may still require more write-offs at its mass market segment). This would also indicate that banks can afford to have stable credit costs (CoC) in 2025F (unlike in 2024, where some banks relied on lower CoC to drive profit growth). Thus, lower loan-loss-provision ratios (LLRs) for these banks would be stable, which could minimize future earnings risks.

Considering the above, we reiterate our long-term overweight view on major Indonesia banks. Within these major banks, we view BBCA as the most resilient.

Valuations and risks

BBCA — We derive our TP of IDR13,200 using a DuPont analysis with the following key parameters: a risk-free rate of 6.5%, an equity risk premium of 7.8%, beta of 0.8x and a CAR-adjusted ROAE of 24.5% (all unchanged). Our TP implies 5.4x FY25F P/B (BVPS of IDR2,468 (vs current price valuation of 4.2x) and 26.9x FY25F P/E (EPS of IDR 493.4 (vs current price valuation of 21.0x). Key downside risks include worsening economic trends, tighter liquidity competition, and/or higher credit cost and opex growth. We maintain our Buy rating and TP of IDR13,200.

BMRI — We derive our TP of IDR8,450 using DuPont methodology. Key parameters include a risk-free rate of 6.5%, an equity risk premium of 7.8%, a CAR-adjusted ROAE of 19.8% and beta of 1.03x (all unchanged). We also use 2025F book value as reference. Our TP implies a 2.5x FY25F P/B (BVPS of IDR3,432) and a 12.4x FY25F P/E (EPS of IDR696) – compared to current price valuations of 2.1x and a 10.6x, respectively. Key downside risks are worse-than-expected macroeconomic trends, government intervention, tight liquidity competition, and higher credit cost and opex growth. We maintain our Buy rating and TP of IDR,8450.

BBRI — We derive our TP of IDR6,300 using a 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% (all unchanged). We also use 2025F book value as a reference. The implied multiples at our TP would be 2.9x 2025F BVPS of IDR2,255 and 14.8x 2025F earnings of IDR428 (compared to current multiples of 2.1x and 11.1x, respectively). Key downside risks to our view are worsening of 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. We maintain our Buy rating and TP of IDR6,300.

BBNI — We derive our TP of IDR6,600 based on a DuPont analysis, assuming a risk-free rate of 6.5%, an equity risk premium of 7.8%, growth of 8.5%, beta 1.0x and a CAR-adjusted ROAE of 16.5% (all unchanged). We also use 2025F book as a reference. The implied multiples at our TP are 1.4x 2025F BVPS of IDR4,712 and 10.7x 2025F earnings of IDR612.8 (compared to current multiples of 1.2x and 9.3x, respectively). Key downside risks to our view are worsening macroeconomic trends, unfavorable regulatory changes, and tighter liquidity competition (which would increase funding cost), and worsening credit quality (which would raise credit costs), and higher opex. We maintain our Buy rating and TP of IDR6,600.

Fig. 1: System LDR comparison (3Q24), %

Fig. 2: LDR, %

Fig. 3: Bank-only loan growth outlook, %

Fig. 4: Stable NIM outlook

Fig. 5: NIM, %

Fig. 6: Loan growth - Oct24 y-y, %

Fig. 7: NP YTD Oct24 y-y, %

Fig. 8: Big 4 banks foreign flow 

Fig. 9: BBCA banks foreign flow 

Fig. 10: BBRI banks foreign flow 

Fig. 11: BMRI banks foreign flow 

Fig. 12: BBNI banks foreign flow 

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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Nicholas Santoso (nicholas.santoso@verdhana.id) 

Erwin Wijaya (erwin.wijaya@verdhana.id)