We roll forward our valuation to 2025F book value, and subsequently raise our TP to ID8,450

Post 1H24 results, we retain our Buy rating on BMRI, and despite BMRI’s outperformance relative to its major peers over the past 24 months, we think the stock deserves to continue to re-rate given its ongoing ROAE / ROAA stability improvements. These improvements were largely driven by the bank’s increased importance as one of the premier transactional banks in Indonesia. BMRI has the least funding cost increase among banks in our coverage over 2Q22-1H24 – second only to BBCA IJ (Buy).

We argue that this sustainably low funding cost will be BMRI’s key moat to maintaining its competitive advantage in the Indonesia banking sector. This should keep future earnings elevated. And post the 1H24 results, we raise our TP to IDR8,450 (from IDR7,200), still based on DuPont methodology.

In this report, we look at major banks’ ROAE trends since 2005, as well as their volatility. Low ROAE volatility suggests high earnings predictability, while high volatility indicates low earnings visibility. BMRI’s positive transformation would translate into a higher ROAE trend with lower volatility over the period. These would mean greater earnings visibility, and thus re-rating opportunities, in our view.

Valuation and risks 

We derive our TP of IDR8,450 (increased from IDR7,200 after rolling forward valuation to 2025F) using DuPont methodology, with key parameters as follows: a risk-free rate of 6.5%, an equity risk premium of 7.8%, beta of 1.03x (1.06x previously), and a CAR-adjusted ROAE of 19.8%. We also use 2025F book as reference. Our TP implies 2.5x FY25F P/B and 12.4x FY25F P/E – compared to current valuations of 2.1x FY25F P/B and a 10.6x FY25F P/E. Risks are worse-than-expected macroeconomic trends, government intervention, tight liquidity competition, and higher credit cost and opex growth.

Fig. 1: Major banks ROAE

 

Fig. 2: Avg ROAE (%) and CoV (x), 2005-2023

 

Fig. 3: ROAA %

 

Fig. 4: Avg ROAA (%) and CoV (x), 2005-2023

 

Fig. 5: BMRI valuation

Bank Mandiri - Fair valuation	New	Remarks
Risk free rate %	6.5
Equity risk premium %	7.8
Beta x	1.03	Down from 1.06 previously
Cost of capital %	14.5
Growth rate (2-yr Cagr) %	11.0
CAR-adj ROAE %	19.8
12mth fwd book	3,408
Target PB multiple	2.5	2025F book as reference
Implied PER	12.4	2025F earnings as reference
Implied TP (IDR)	8,437	Rounded to IDR8,450 (up from previous TP IDR7,850)

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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