BRIS has released its YTD Jul-24 results, with headline profit of IDR3.9tn (+21% y-y) accounting for 62% of our FY24F profit estimate of IDR6.3tn. At the operating level, the bank reported YTD net financing income of IDR10.3tn (+3% y-y) and PPOP of IDR6.3tn (+4% y-y). The soft y-y financing income growth can be attributed to lack of asset yields’ repricing (which stood at 7.3% or -20bp y-y), while funding expenses increased (rising to 2.6% or +30bp y-y). This translates to YTD-24 annualized NIM of 5.1% (-50bp y-y). Further, while we see limited scope for Indonesia banks (including BRIS) to reprice their lending rates upward, we see early encouraging signs as funding expenses appear to have stabilized (and for BRIS, it is at around 2.6% — a slight decline from the peak of 2.8% in Mar-24). Going into 4Q24 we see opportunities for funding costs to decline as we expect BI to reduce its benchmark rates as well as reducing its SRBI issuances (thereby potentially improving system liquidity). Within the Indonesia banking sector, BRIS haa a relatively large portion of fixed-yield earnings assets than other banks. Post the results, we retain our Buy rating for the stock, primarily reflecting the bank’s dominant position in Indonesia’s under-penetrated Syariah-based banking.

In this report, we take a deep-dive into the bank's monthly results trends. Monthly results can be volatile, which makes analyzing the trends challenging. For instance, at the end of the quarter, the bank would report a jump in financing income as some borrowers pay their financing expenses (i.e. financing income to BRIS) on a quarterly basis. Consequently, when analyzing monthly net financing income (NFI) of IDR1.5tn (for Jul-24-only), it is below Mar-24 and Jun-24-only NFIs. Still, on a y-y basis, Jul-24-only NFI was up 5% y-y primarily due to gross financing increase of ~14% y-y (this helped to offset lower NFM of 50bp y-y to 5.1% in YTD Jul-24). On asset qualities, according to management, the bank has implemented a more stringent underwriting procedure, and hence we expect asset qualy to improve. Thus, it should not come as a surprise that the bank’s credit costs hovered around 50bp in Jul-24, bringing YTD figure to 0.9% (-60bp y-y). This brings reserves for financing losses (i.e., LLR) at 3.9% (-10bp m-m / -50bp y-y). This is one of the lowest among the Indonesia banks under our coverage. However, the bank has large financing exposure to payroll financing which has limited risk in nature. We do not think BRIS can afford to continue recording lower LLR in the long term as the current LLR is at around the pre-merger level (2021, when BNI Syariah and Bank Syariah Mandiri officially merged with BRIS)

On balance sheet, the bank reported gross financing growth of 14% y-y, with financing deposits up 11%, resulting in a financing-to-funding ratio (i.e., LDR) of 85.2% (-40bp m-m / -100bp y-y). In Jul-24, current account was the main growth driver (+7% m-m / +41% y-y), followed by savings account (flat m-m / +15% y-y) and time deposits (-2% m-m / +6% y-y).

Valuation and risks

We derive our TP of IDR3,100 using DuPont methodology, with key parameters as below: a risk-free rate of 6.5%, an equity risk premium of 7.8%, beta of 1.2x, and a CAR-adjusted ROAE of 18.0%. We also use FY24F book as a reference in deriving our TP. Our TP implies a FY24F P/B of 3.2x and a FY24F P/E of 22.6x. The stock currently trades at a FY24F P/B of 2.4x and FY24F P/E of 16.7x. 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.

Fig. 1: BRIS NIMs

Fig. 2: BRIS NIMs