We revise our FY25F-27F earnings forecasts for BMRI to reflect the challenging macroeconomic landscape that is currently marked by tight liquidity and subdued loan demand. Lower yields for SRBI (Bank Indonesia Rupiah Securities) might put some pressure on asset yields, as Indonesia banks will find it difficult to reprice their lending rates upward. With flat YTD loan growth, we believe meeting management's guidance of ~10-12% loan growth in 2025E will be challenging. We also think credit costs (CoC) could likely be at the upper end of management’s expectations. Consequently, we adopt a more conservative stance on our projections, reflecting the uncertainty and potential risks in the banking sector.
We cut FY25F-27F earnings by ~4.3-5.7%, mainly derived from lower NII of ~-0.9-1.0%, higher opex of ~1.6-3.2% and higher provisions of ~3.2-3.3%. This results in lower equity (and book value per share), with implied ROAEs of 18.6-19.0% for FY25F-27F; hence, we lower our TP to IDR6,500. We believe overall liquidity in the banking sector will remain tight for the remainder of 2025F, and thus we expect the interest rate structure to remain elevated. Recent BI rate cuts might have little impact on funding costs, particularly when we see slight upticks in retail bond yields. These could result in more deposits shifting towards government-issued retail bonds. In our view, near-term share price catalysts are a further improvement in system liquidity and further BI rate cuts, and we believe there is still room for further cuts before the end of 2025F.
Despite these earnings cuts, we think the market has priced in earnings risks, as valuations for BMRI are below their historical mean multiples.
Valuation and risks
We derive our new TP of IDR6,500 (from IDR7,300) still using the DuPont analysis, with key parameters as follows: a risk-free rate of 6.5%, an equity risk premium of 7.8%, growth of 11.0%, beta 1.08x (up from 1.05x) and a CAR-adjusted ROAE of 19.0% (down from 19.5%). Our TP implies 2.1x FY25F P/B (vs 1.5x currently) and 11.3x FY25F P/E (vs 8.1x currently). Risks are worsening economic trends, tighter liquidity competition, and/or higher credit cost and opex growth.
Company profilePT Bank Mandiri (Persero) Tbk or Bank Mandiri, headquartered in Jakarta, is the largest bank in Indonesia in terms of assets, loans and deposits.
Valuation MethodologyWe derive our TP of IDR6,500 using DuPont analysis with key parameters as follow: a risk-free rate of 6.5%, an equity risk premium of 7.8%, growth of 11.0%, beta 1.08x and a CAR-adjusted ROAE of 19.0%. Our TP implies 2.1x FY25F P/B and 11.3x FY25F P/E. The benchmark for this stock is the JCI.
Risks that may impede the achievement of the target priceRisks are worsening economic trends, tighter liquidity competition, and/or higher credit cost and opex growth.
ESGBank Mandiri is at the forefront of sustainable banking and has taken steps to demonstrate its commitment to be the pioneer of sustainable banking. It has launched the Sustainable Finance Action Plan or Rencana Aksi Keuangan Berkelanjutan (“RAKB”), focusing on responsible lending, which serves as a basis for Green, Social and/or Sustainability (“GSS”) Bond issuance(s). RAKB was designed to increase the size of sustainability financing portfolio of the Bank by implementing it gradually in the wholesale and retail segment based on the Bank’s priority. Bank Mandiri has committed to the United Nations Sustainable Development Goals (“SDGs”) by making RAKB the foundation of investment decision making. There are three essential pillars in RAKB, which include: Sustainable Banking Focused on banking activities, the goal of this pillar is to manage the environment, social, and governance (“ESG”) risk and to expand the opportunities to become a sustainable bank. Sustainable Operation Bank Mandiri is committed to improving its environment and social performance by redesigning real estate management, digital transformation, and human capital management. Corporate Social Responsibility (”CSR”) Bank Mandiri is implementing an integrated and holistic philosophy, which acts as a foundation in corporate social responsibility activities.
Fig. 1: BMRI forecasts
Source: Company data, Verdhana estimates
Fig. 2: BMRI – valuation
Source: Company data, Verdhana estimates
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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