Bank Rakyat Indonesia (BBRI IJ) (Buy) - 1H25 profit down 12% y-y

1H25 profit down 12% y-y

BBRI has released both bank-only and consolidated 1H25 results, whereby profits were both down by ~12% y-y. We attribute these soft results to: 1) elevated credit costs (CoC) of 3.4% (+10bp y-y); 2) tight liquidity resulting in high cost of funds (CoF) of 3.6% (a slight improvement on a y-y basis, but still reflecting tight liquidity in the system); and 3) a change in the interest-earnings asset mix as well as the loan mix, which resulted in a slight decline in gross yields to ~10.8% (from ~11.0% a year ago).

In 2H25, we expect CoC to remain elevated. Meanwhile, we expect liquidity in the banking system to improve with increased government spending as well as placement of Ministry of Finance funds into the SOE banks. While this may prevent CoF from rising, we think tight liquidity will remain, resulting in potentially elevated funding costs for banks in general.

Our assessments from BBRI’s bank-only results also suggest that it still has elevated write-off rates and thus NPL formation. Indeed, we estimate BBRI’s 12MMA monthly write-off rate stood at ~3.6%. So far, the trend doesn’t show signs of abating, which would mean elevated credit costs (CoC) for BBRI. We think two areas with high write-off rates and/or NPL formation rates are in then micro and small loan portfolios. Given the above, we think BBRI’s medium-term earnings growth trajectory will remain subdued. Our projected three-year (2024-27F) consolidated earnings CAGR is ~0.4%.

Longer term, we maintain our view that BBRI may need to start tapping into other segments, as growth in mass-market segments is structurally slower given the fact that deposit growth in mass-market segments has been sluggish – suggesting that loan growth for this segment will be <5% pa. The government’s efforts to focus on mass-market segment (e.g., with village cooperative initiatives) will play crucial roles to enhance its growth potential.

2Q25 consolidated results summary

● NII reached IDR37.4tn (+4% q-q; +10% y-y), bringing 1H25 NII to IDR73.3tn (+5% y-y) – and representing ~48% of our FY25F estimate. Headline NIM stayed at ~7.8% (largely flat y-y).

● PPOP stood at IDR28.4tn (-5% q-q; +2% y-y), implying 1H25 PPOP of IDR58.3tn (-3% y-y) – representing ~49% of our FY25F projection.
● Credit costs hovered ~315bp (a drop from 1Q25’s ~360bp), bringing 1H25 CoC at ~335bp (a slight increase from ~328bp in 1H24). We think 2H25 CoC may remain elevated given persistently high write-off rates.
⁠● Profit was at IDR12.6tn (-8% q-q; -9% y-y), resulting in 1H25 profit of IDR26.3tn (-12% y-y). This represents ~45% of our FY25F earnings estimate.
● On the balance sheet, BBRI booked loan and deposit growth of +6% y-y (+5% YTD) and +7% y-y (+9% YTD), respectively. In particular, deposit growth was driven by Current Accounts (+16% y-y; +11% YTD), bringing the CASA ratio to ~66% (up from ~63% in 1H24). The implied LDR stood at ~96% (flat y-y).
● On asset quality, the bank reported NPL of ~2.9% (flat y-y) and LAR of ~11.1% (-100bp y-y). These brought coverage to ~200% and ~58%, respectively.
● Post results, we think BBRI may continue to underperform its major peers, at least in 2025 (and potentially into 2026) given still ongoing slow growth in its high-yield mass-market loan segments as well as elevated credit costs. Nevertheless, we maintain our long-term view on the stock with a Buy rating and TP of IDR5,000, as we expect BBRI could benefit from government programs such as Village Cooperatives to boost the mass-market segment.

Valuation and risks

We derive our TP of IDR5,000 using DuPont analysis with key parameters as follows: a risk-free rate of 6.5%, an equity risk premium of 7.8%, growth of 9.3%, beta of 0.85x and a CAR-adjusted ROAE of 18.0%. Our TP implies 2.3x FY25F P/B (vs current price valuation of 1.7x) and 12.8x FY25F P/E (vs current price valuation of 9.8x). Risks are worsening economic trends, tighter liquidity competition, and/or higher credit cost and opex growth.