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Bank Rakyat Indonesia -BBRI IJ- Buy - ROAE uptrend on positive micro trends

Bank Rakyat Indonesia -BBRI IJ- Buy - ROAE uptrend on positive micro trends

Banks NS EW 736 29th Aug, 2024

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ROAE uptrend on positive micro trends

Rolling forward to 2025F book-value; raise TP to IDR6,300

We turn more positive on BBRI

Based on Indonesia government’s latest 2025 budget, BBRI will potentially have less exposure to KURs (and hence increased exposure to commercial-based Kupedes micro loans), in our view. We view this as a positive for the bank, as Kupedes ROAAs are generally higher than that of KUR. Combine this with the likely easing of downgrade/write-off risks in the next 12 months in our view, we believe earnings downside risks for BBRI will likely be lower. In addition, expectations of BI cutting interest rate and issuing fewer Bank Indonesia Rupiah Securities (SRBI) should enable BBRI to register lower funding costs (and hence potentially better NIM trends or at least minimize NIM risk). On the back of the aforementioned attributes, we retain our Buy rating on the stock with a higher TP of IDR6,300 (rolling forward to 2025F book). The stock’s relative underperformance vs other large-cap bank peers in the past three years also poses limited downside risks from current levels.

Valuation and risks

We derive our new TP of IDR6,300 (IDR6,000 previously) based on a DuPont analysis, assuming 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%. We also use 2025F book as reference. The implied multiples at our TP are 2.9x 2025F book and 14.8x 2025F earnings (compared to current multiples of 2.0x and 10.7x, respectively). Key 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.

Fig. 1: BBRI valuation

BBRI - TP derivation 2025F Remarks 
 Risk free rate %                6.5  
 Equity risk premium %                7.8  
 Beta (x)                0.8  
 Cost of equity %               12.7Down from 12.8
 Normalised growth %               10.0  
 CAR-adj ROAE %               18.0  
 Target 12-mth fwd PB                2.9using 2025F as reference
 Implied 12-mth fwd PE               14.8  
 Implied share price (IDR rounded)             6,309Rounded to IDR6,300 (from IDR6,000)
Source: Company data, Verdhana estimates

Forecast Table

Year-end 31 DecFY23FY24FFY25FFY26F
Currency (IDR)ActualOldNewOldNewOldNew
PPOP (bn)106,352115,175115,175120,977120,977126,757126,757
Reported net profit (bn)60,10061,84861,84864,59064,59067,23667,236
Normalised net profit (bn)60,10061,84861,84864,59064,59067,23667,236
FD normalised EPS398.24409.82409.82427.99427.99445.52445.52
FD norm. EPS growth (%)17.82.92.94.44.44.14.1
FD normalised P/E (x)12.9–12.6–12.0–11.6
Price/adj. book (x)2.5–2.4–2.3–2.2
Price/book (x)2.5–2.4–2.3–2.2
Dividend yield (%)6.1–6.2–6.4–6.6
ROE (%)19.719.419.419.419.419.319.3
ROA (%)3.13.03.02.92.92.72.7
Source: Company data, Verdhana estimates

Key data on Bank Rakyat Indonesia

Profit and loss (IDRbn)
Year-end 31 Dec
FY22
FY23
FY24F
FY25F
FY26F
Interest income
160,812
188,075
202,096
216,436
231,543
Interest expense
-34,637
-50,730
-51,345
-57,550
-62,978
Net interest income
126,174
137,345
150,751
158,886
168,564
Net fees and commissions
18,795
20,738
22,009
24,210
24,348
Trading related profits
2,650
2,301
2,250
2,000
2,000
Other operating revenue
25,858
22,906
22,000
21,000
20,000
Non-interest income
47,303
45,945
46,259
47,210
46,348
Operating income
173,477
183,290
197,010
206,096
214,912
Depreciation
-3,615
-3,726
-4,026
-4,266
-4,388
Amortisation
0
0
0
0
0
Operating expenses
-38,781
-35,362
-38,522
-40,352
-42,251
Employee share expense
-39,390
-37,850
-39,287
-40,500
-41,516
Pre-provision op profit
91,691
106,352
115,175
120,977
126,757
Provisions for bad debt
-27,385
-29,523
-36,472
-38,735
-41,087
Other provision charges
0
0
0
0
0
Operating profit
64,306
76,829
78,703
82,242
85,670
Other non-op income
291
-399
0
0
0
Associates & JCEs
0
0
0
0
0
Pre-tax profit
64,597
76,430
78,703
82,242
85,670
Income tax
-13,188
-16,005
-16,481
-17,222
-17,940
Net profit after tax
51,408
60,425
62,222
65,020
67,731
Minority interests
-238
-325
-374
-430
-495
Other items
0
0
0
0
0
Preferred dividends
0
0
0
0
0
Normalised NPAT
51,170
60,100
61,848
64,590
67,236
Extraordinary items
0
0
0
0
0
Reported NPAT
51,170
60,100
61,848
64,590
67,236
Dividends
-35,028
-47,558
-48,102
-49,479
-51,672
Transfer to reserves
16,142
12,541
13,746
15,112
15,564
Growth (%)
Net interest income
9.6
8.9
9.8
5.4
6.1
Non-interest income
14.8
-2.9
0.7
2.1
-1.8
Non-interest expenses
0.5
-8.8
8.9
4.8
4.7
Pre-provision earnings
19.2
16.0
8.3
5.0
4.8
Net profit
66.4
17.5
2.9
4.4
4.1
Normalised EPS
66.4
17.8
2.9
4.4
4.1
Normalised FDEPS
66.4
17.8
2.9
4.4
4.1
Loan growth
9.5
12.9
4.2
10.2
10.0
Interest earning assets
10.4
4.1
8.4
10.3
10.6
Interest bearing liabilities
12.6
4.6
9.0
11.8
11.8
Asset growth
11.2
5.3
7.8
10.1
10.2
Deposit growth
14.9
3.9
7.5
12.5
12.5
Source: Company data, Verdhana estimates
Balance sheet (IDRbn)
As at 31 Dec
FY22
FY23
FY24F
FY25F
FY26F
Cash and equivalents
27,407
31,604
34,831
39,185
44,083
Inter-bank lending
0
0
0
0
0
Deposits with central bank
150,935
101,909
112,316
126,355
142,150
Total securities
381,257
364,605
445,974
484,097
536,231
Other int earning assets
91,870
87,545
91,087
105,018
121,057
Gross loans
1,134,313
1,260,852
1,317,528
1,449,281
1,594,209
Less provisions
-88,324
-79,924
-87,171
-92,855
-101,889
Net loans
1,045,989
1,180,927
1,230,357
1,356,426
1,492,319
Long-term investments
6,507
7,305
457
574
715
Fixed assets
55,216
59,678
60,652
61,386
57,097
Goodwill
0
0
0
0
0
Other intangible assets
0
0
0
0
0
Other non IEAs
106,458
131,433
142,520
158,272
175,994
Total assets
1,865,639
1,965,007
2,118,194
2,331,313
2,569,646
Customer deposits
1,307,884
1,358,329
1,460,203
1,642,729
1,848,070
Bank deposits, CDs, debentures
82,944
80,675
117,677
132,387
148,935
Other int bearing liabilities
79,873
99,347
99,347
99,347
99,347
Total int bearing liabilities
1,470,701
1,538,352
1,677,228
1,874,463
2,096,352
Non-int bearing liabilities
91,543
110,183
110,374
110,717
111,102
Total liabilities
1,562,244
1,648,535
1,787,602
1,985,179
2,207,454
Minority interest
4,101
5,109
5,483
5,913
6,407
Common stock
83,215
83,431
83,431
83,431
83,431
Preferred stock
0
0
0
0
0
Retained earnings
201,170
213,711
227,458
242,569
258,133
Reserves for credit losses
0
0
0
0
0
Proposed dividends
0
0
0
0
0
Other equity
14,909
14,221
14,221
14,221
14,221
Shareholders' equity
299,294
311,364
325,110
340,221
355,785
Total liabilities and equity
1,865,639
1,965,007
2,118,194
2,331,313
2,569,646
Non-perf assets
30,405
37,386
41,125
45,237
49,761
Balance sheet ratios (%)
Loans to deposits
86.7
92.8
90.2
88.2
86.3
Equity to assets
16.0
15.8
15.3
14.6
13.8
Asset quality & capital
NPAs/gross loans (%)
2.7
3.0
3.1
3.1
3.1
Bad debt charge/gross loans (%)
2.41
2.34
2.77
2.67
2.58
Loss reserves/assets (%)
4.73
4.07
4.12
3.98
3.97
Loss reserves/NPAs (%)
290.5
213.8
212.0
205.3
204.8
Tier 1 capital ratio (%)
16.5
17.4
15.2
14.2
16.2
Total capital ratio (%)
17.2
18.2
16.0
14.9
16.9
Per share
Reported EPS (IDR)
338.01
398.33
409.92
428.09
445.62
Norm EPS (IDR)
338.01
398.33
409.92
428.09
445.62
FD norm EPS (IDR)
337.96
398.24
409.82
427.99
445.52
DPS (IDR)
231.38
315.20
318.81
327.93
342.47
PPOP PS (IDR)
605.67
704.87
763.35
801.81
840.12
BVPS (IDR)
1,977.02
2,063.64
2,154.74
2,254.90
2,358.05
ABVPS (IDR)
1,977.02
2,063.64
2,154.74
2,254.90
2,358.05
NTAPS (IDR)
1,977.02
2,063.64
2,154.74
2,254.90
2,358.05
Valuations and ratios
Reported P/E (x)
15.2
12.9
12.6
12.0
11.6
Normalised P/E (x)
15.2
12.9
12.6
12.0
11.6
FD normalised P/E (x)
15.2
12.9
12.6
12.0
11.6
Dividend yield (%)
4.5
6.1
6.2
6.4
6.6
Price/book (x)
2.6
2.5
2.4
2.3
2.2
Price/adjusted book (x)
2.6
2.5
2.4
2.3
2.2
Net interest margin (%)
7.80
7.93
8.19
7.89
7.58
Yield on assets (%)
9.94
10.86
10.98
10.75
10.41
Cost of int bearing liab (%)
2.50
3.37
3.19
3.24
3.17
Net interest spread (%)
7.45
7.49
7.79
7.51
7.24
Non-interest income (%)
27.3
25.1
23.5
22.9
21.6
Cost to income (%)
47.1
42.0
41.5
41.3
41.0
Effective tax rate (%)
20.4
20.9
20.9
20.9
20.9
Dividend payout (%)
68.5
79.1
77.8
76.6
76.9
ROE (%)
17.4
19.7
19.4
19.4
19.3
ROA (%)
2.89
3.14
3.03
2.90
2.74
Operating ROE (%)
21.9
25.2
24.7
24.7
24.6
Operating ROA (%)
3.63
4.01
3.85
3.70
3.50
Source: Company data, Verdhana estimates
Company profilePT Bank Rakyat Indonesia (Persero) Tbk (BBRI IJ) is one of the largest banks in Indonesia. It specialises in small scale and microfinance style borrowing and lending.
Valuation MethodologyWe derive our TP of IDR6,300 using Dupont methodology, with key parameters as follows: a risk-free rate of 6.5%, an equity risk premium of 7.8%, beta of 0.8x, and a CAR-adj ROAE of 18.0%. We have also used 2025F book as reference. Our TP implies 2.9x FY25F P/B and 14.8x FY25F P/E. The benchmark for the stock is the JCI.
Risks that may impede the achievement of the target priceKey downside risks to our call are: 1) worsening economic trends, 2) unfavorable regulatory changes, 3) tighter liquidity competition which could increase funding costs, 4) worsening credit quality which would raise credit costs, and/or 4) higher opex.
ESGBRI has launched various activities and programs in its contribution towards the global commitments and the national objectives as stipulated in the Presidential Regulation Number 59 year 2017 which regulates the Implementation of the Sustainable Development Goals. BRI is the Chair of the Indonesian Sustainable Finance Initiative (IKBI) which aims to help the government’s efforts to achieve the SDGs. BRI prioritizes customers that offer environmentally friendly products / have environmental certifications. BRI collaborates with Bank Indonesia and the Indonesian Economic and Trade Office (Kantor Dagang dan Ekonomi Indonesia - KDEI) in Taiwan to organize education sessions for Indonesian migrant workers on theimportance of cashless remittance transfers. BRI collaborates / actively participates in programs at community, national- and global- levels to enhance the development of sustainable finance. These programs including METI, CDP Pilot Project, UNDP, ADLIGHT, NPAP and CASE Programs.

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. 

GENERAL DISCLOSURE/DISCLAIMER 
This report is prepared by PT Verdhana Sekuritas Indonesia (“PTVSI”) a securities company registered in Indonesia, supervised by Indonesia Financial Services Authority (OJK) and a member of the Indonesia Stock Exchange (IDX).

This report is intended for client of PTVSI only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of PTVSI.

The research set out in this report is based on information obtained from sources believed to be reliable, but PTVSI do not make any representation or warranty as to its accuracy, completeness or correctness. The information in this report is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. Any information, valuations, opinions, estimates, forecasts, ratings or targets herein constitutes a judgment as of the date of this report is published, and there is no assurance that future results or events will be consistent.


This report is not to be construed as an offer or a solicitation of an offer to buy or sell any securities or financial products. PTVSI and its associates, its directors, and/or its employees may from time to time have interests in the securities mentioned in this report or it may or will engage in any securities transaction or other capital market services for the company (companies) mentioned herein.

ANALYST CERTIFICATION
The research analyst primarily responsible for the content of this report and certifies that the views about the companies including their securities expressed in this report accurately reflect his/her personal views.  The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.


RESTRICTIONS ON DISTRIBUTION

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Rating Table

Rating
Remains
Buy
Target price
Increased from IDR 6,000
IDR 6,300
Closing price
28 August 2024
IDR 5,150
Implied upside+22.3%
Market Cap (USD mn)50,111.8
ADT (USD mn)76.1

Stock Chart Data



Source: LSEG, Verdhana



M cap (USDmn)
50,111.8
Free float (%)
43.3
3-mth ADT (USDmn)
76.1
(%)
1M
3M
12M
Absolute (IDR)
8.2
13.7
-7.2
Absolute (USD)
14.3
18.6
-8.0
Rel to Jakarta Stock Exchange Composite Index
3.9
8.9
-17.0

Research Analysts

Indonesia Research Team


Nicholas Santoso (nicholas.santoso@verdhana.id) 

Erwin Wijaya (erwin.wijaya@verdhana.id)

Tags: Banks, BBRI, BBRI JK, BBRI IJ, Nicholas Santoso, Erwin Wijaya
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