BRIS continued to deliver solid 2Q24 bottom line performance with the numbers coming in largely in-line with our projections. The bank reported net profit of IDR1.7tn (-1% q-q; +24% y-y), bringing 1H24 profits to IDR3.4tn (+20% y-y), representing 54% of our FY24F projection. At the operating level, the bank reported 1H24 net financing income of IDR8.8tn (+3% y-y) and PPOP of IDR5.6tn (+4% y-y), a relatively soft result likely attributable to lack of asset yields’ repricing (was at 6.6% or -13bp y-y), while funding expenses increased (rising to 2.5% or +24bp y-y). The lack of repricing for financing (i.e. loans for conventional banks) has been a common trait across most Indonesia banks under our coverage. We attribute these to financing (or lending) competitions as well as tight liquidity. This translates to NFM (or NIM) of 5.3% (-54bp y-y) in 1H24. Having said that, we think in 4Q24F funding costs could improve, driven by potential cuts in BI rates as well as net reduction in SRBIs (giving room for liquidity improvement for the system). Among the major banks, we think BRIS has proportionally more fixed-yielding earnings assets than most conventional banks. We estimate ~55-60pct of total financings are fixed-yielding in nature. Further out, we expect BRIS to continue delivering higher financing growth than the sector average and stabilizing funding costs, which would reduce pressure on its 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 2Q24 results. Hence, we reiterate our Buy rating on the stock with a TP of IDR3,100.

2Q24 result summary:

• 2Q24 Net financing/margin income (NFI) stood at IDR4.4tn (flat q-q and +4% y-y), bringing 1H24 NFI to IDR8.8tn (+3% y-y), accounting for 47% of our FY24F projections. The y-y growth primarily came from: 1) higher 2Q24 margin income of IDR 6.3tn (+0% q-q; +11% y-y) (and therefore higher 1H24 margin income of IDR12.6tn [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 among the 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, 2Q24 PPOP rose to IDR2.8tn (flat q-q; +3% y-y), bringing 1H24 PPOP to IDR5.6tn (+4% y-y) accounting for 46% of our FY24F projections. Combined with the lower 2Q24 provision expense of 1.0% (vs 1.8% in 2Q23), the bank’s 2Q24 net profit reached IDR1.7tn (-1% q-q; +24% y-y), bringing 1H24 profits to IDR3.4tn (+20% y-y) accounting for 54% of our FY24F projections. Thus, we think BRIS is on track to meet if not exceed our FY24F projections. Overall, the implied ROAA in 2Q24 stood at a strong 1.9% (+14bp y-y), with ROAE of 16.4% (+103bp y-y).

• On the balance sheet, BRIS booked financing growth of 16% y-y, higher than the sector growth. On funding, the bank reported financing (deposits) growth of 31% y-y. This implies LFR of 73.3% (-473p q-q: -968bp y-y), still relatively considerable compared to the broader banking sector in Indonesia.

Valuation and Risks

Our TP of IDR3,100 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 17.9%. Our TP implies a FY24F P/B of 2.8x (from a current valuation of 2.7x) and a FY24F P/E of 20.3x (19.9x at the current price). 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.