Bank Rakyat Indonesia (BBRI IJ) (Buy) - Slow growth outlook

Slow growth outlook

Maintain Buy with lower TP of IDR5,000

Large write-offs for micro/ultra micro loans likely to continue

We believe BBRI will still face the issue of maturing micro/ultra-micro loans. Given the still sluggish micro deposits growth (~2% pa), growth in micro lending is likely to continue slowing and thus, we think BBRI would have to re-focus on the corporate /commercial segments, at least in the medium term (~3-years). We acknowledge not all market watchers would agree with this view, given the typically low margin/profitability of these segments and thus lower ROAEs. We also expect the large write-offs for micro/ultra micro loans to continue in 2025-26F. We believe these might have been the primary reasons for the stock substantial selling pressure in 2024F, and that BBRI share price could continue to underperform near term. We think BBRI will have elevated credit costs (CoC) at 3.20% in 2025-27F. Normalized CoC too will likely be higher than the pre-COVID (i.e. FY18-19) average 2.20% because of the Permodalan Nasional Madani (PNM, unlisted) consolidation.

Cut FY25-26F earnings estimates

Post the FY24 results, we believe a more conservative earnings projection is warranted, primarily to reflect: 1) higher loan write-offs and hence higher credit cost assumption (up by 30bp to 3.20% for 2025-26F); and 2) soft loan growth; we project 7.5% p.a. for 2025-26F. We also raise our payout ratio assumption to 85.0% (from 80.0%). These translate to earnings cuts of 3-4% in 2025-26F. We add a new forecast year, FY27F.

Post these downgrades, we expect the stock to continue to underperform Indonesia’s broader index, primarily reflecting concerns as highlighted above. Having said that, we have seen more stable loan write-off trends (albeit still elevated) which would suggest limited downside to earnings. We lower our TP to IDR5,000 (from IDR5,400).

Valuation and risks

Our new TP of IDR5,000 is based on DuPont analysis, with a risk-free rate of 6.5%, an equity risk premium of 7.8% (unchanged), growth of 9.3% (unchanged), beta 0.85x (up from 0.8x) and a CAR-adjusted ROAE of 18.0% (unchanged). We also use 2025F book as reference. The implied multiples at our TP would be 2.3x 2025F book and 12.5x 2025F earnings. Risks are worsening macroeconomic trends, unfavorable regulatory changes, and tighter liquidity competition, which could increase funding costs, worsening credit quality which would raise credit costs, and higher opex. Changes in management may affect the bank’s write-off policies and thus, credit costs. This would ultimately affect the bank’s near-term earnings.

Year-end 31 Dec	FY24		FY25F		FY26F		FY27F
Currency (IDR)	Actual	Old	New	Old	New	Old	New
PPOP (bn)	120,336	119,003	119,142	123,805	123,391	0	128,669
Reported net profit (bn)	60,155	62,313	60,268	63,695	60,996	0	62,342
Normalised net profit (bn)	60,155	62,313	60,268	63,695	60,996	0	62,342
FD normalised EPS	398.60	412.90	399.35	422.06	404.18		413.19
FD norm. EPS growth (%)	0.1	0.8	0.2	2.2	1.2		2.2
FD normalised P/E (x)	10.1	–	10.1	–	10.0	–	9.8
Price/adj. book (x)	1.9	–	1.8	–	1.8	–	1.7
Price/book (x)	1.9	–	1.8	–	1.8	–	1.7
Dividend yield (%)	7.8	–	8.4	–	8.4	–	8.5
ROE (%)	19.1	18.8	18.5	18.5	18.0		17.8
ROA (%)	3.0	2.8	2.9	2.6	2.8		2.7

Source: Company data, Verdhana estimates

Key data on Bank Rakyat Indonesia

Profit and loss (IDRbn)
Year-end 31 Dec	FY23	FY24	FY25F	FY26F	FY27F
Interest income	188,075	208,027	217,745	230,670	241,583
Interest expense	-50,730	-62,719	-64,122	-68,990	-73,009
Net interest income	137,345	145,308	153,623	161,680	168,575
Net fees and commissions	20,738	20,475	20,205	21,720	23,349
Trading related profits	2,301	3,397	2,688	2,688	2,688
Other operating revenue	22,906	30,689	25,000	22,500	22,500
Non-interest income	45,945	54,561	47,893	46,908	48,537
Operating income	183,290	199,869	201,516	208,588	217,112
Depreciation	-3,726	-5,843	-6,065	-6,235	-6,242
Amortisation	0	0	0	0	0
Operating expenses	-35,362	-34,506	-36,021	-37,796	-40,137
Employee share expense	-37,850	-39,184	-40,287	-41,166	-42,063
Pre-provision op profit	106,352	120,336	119,142	123,391	128,669
Provisions for bad debt	-29,523	-41,758	-43,104	-46,337	-49,812
Other provision charges	0	0	0	0	0
Operating profit	76,829	78,578	76,038	77,054	78,857
Other non-op income	-399	-979	0	0	0
Associates & JCEs	0	0	0	0	0
Pre-tax profit	76,430	77,599	76,038	77,054	78,857
Income tax	-16,005	-16,955	-15,208	-15,411	-15,771
Net profit after tax	60,425	60,644	60,830	61,643	63,086
Minority interests	-325	-489	-562	-647	-744
Other items	0	0	0	0	0
Preferred dividends	0	0	0	0	0
Normalised NPAT	60,100	60,155	60,268	60,996	62,342
Extraordinary items	0	0	0	0	0
Reported NPAT	60,100	60,155	60,268	60,996	62,342
Dividends	-47,558	-47,584	-51,132	-51,228	-51,847
Transfer to reserves	12,541	12,571	9,136	9,769	10,495
Growth (%)
Net interest income	8.9	5.8	5.7	5.2	4.3
Non-interest income	-2.9	18.8	-12.2	-2.1	3.5
Non-interest expenses	-8.8	-2.4	4.4	4.9	6.2
Pre-provision earnings	16.0	13.1	-1.0	3.6	4.3
Net profit	17.5	0.1	0.2	1.2	2.2
Normalised EPS	17.8	0.1	0.2	1.2	2.2
Normalised FDEPS	17.8	0.1	0.2	1.2	2.2
Loan growth	12.9	7.8	3.3	7.5	7.1
Interest earning assets	4.1	3.0	8.5	6.5	6.5
Interest bearing liabilities	4.6	1.8	8.7	6.9	7.0
Asset growth	5.3	1.4	7.7	6.0	6.1
Deposit growth	3.9	0.5	7.5	7.5	7.5
Source: Company data, Verdhana estimates

Balance sheet (IDRbn)
As at 31 Dec	FY23	FY24	FY25F	FY26F	FY27F
Cash and equivalents	31,604	29,784	37,147	39,933	42,928
Inter-bank lending	0	0	0	0	0
Deposits with central bank	101,909	88,879	110,851	119,165	128,103
Total securities	364,605	343,323	418,393	428,063	443,325
Other int earning assets	87,545	83,448	90,876	98,696	107,225
Gross loans	1,260,852	1,350,480	1,395,692	1,500,369	1,612,897
Less provisions	-79,924	-76,903	-79,559	-85,448	-97,182
Net loans	1,180,927	1,273,577	1,316,133	1,414,921	1,515,714
Long-term investments	7,305	8,077	445	502	566
Fixed assets	59,678	62,478	61,413	55,277	49,135
Goodwill	0	0	0	0	0
Other intangible assets	0	0	0	0	0
Other non IEAs	131,433	103,418	111,857	119,178	127,048
Total assets	1,965,007	1,992,983	2,147,113	2,275,734	2,414,043
Customer deposits	1,358,329	1,365,450	1,467,859	1,577,948	1,696,294
Bank deposits, CDs, debentures	80,675	72,226	105,898	113,840	122,378
Other int bearing liabilities	99,347	128,372	128,372	128,372	128,372
Total int bearing liabilities	1,538,352	1,566,047	1,702,128	1,820,160	1,947,044
Non-int bearing liabilities	110,183	103,747	103,908	104,082	104,268
Total liabilities	1,648,535	1,669,794	1,806,037	1,924,242	2,051,312
Minority interest	5,109	6,095	6,657	7,304	8,048
Common stock	83,431	83,458	83,458	83,458	83,458
Preferred stock	0	0	0	0	0
Retained earnings	213,711	218,093	235,418	245,187	255,682
Reserves for credit losses	0	0	0	0	0
Proposed dividends	0	0	0	0	0
Other equity	14,221	15,543	15,543	15,543	15,543
Shareholders' equity	311,364	317,094	334,419	344,188	354,683
Total liabilities and equity	1,965,007	1,992,983	2,147,113	2,275,734	2,414,043
Non-perf assets	37,386	38,102	43,564	46,832	50,344
Balance sheet ratios (%)
Loans to deposits	92.8	98.9	95.1	95.1	95.1
Equity to assets	15.8	15.9	15.6	15.1	14.7
Asset quality & capital
NPAs/gross loans (%)	3.0	2.8	3.1	3.1	3.1
Bad debt charge/gross loans (%)	2.34	3.09	3.09	3.09	3.09
Loss reserves/assets (%)	4.07	3.86	3.71	3.75	4.03
Loss reserves/NPAs (%)	213.8	201.8	182.6	182.5	193.0
Tier 1 capital ratio (%)	17.4	15.2	15.0	17.6	19.4
Total capital ratio (%)	18.2	16.1	15.7	18.3	20.2
Per share
Reported EPS (IDR)	398.33	398.69	399.44	404.27	413.19
Norm EPS (IDR)	398.33	398.69	399.44	404.27	413.19
FD norm EPS (IDR)	398.24	398.60	399.35	404.18	413.19
DPS (IDR)	315.20	315.38	338.89	339.52	342.48
PPOP PS (IDR)	704.87	797.55	789.64	817.80	852.79
BVPS (IDR)	2,063.64	2,101.62	2,216.44	2,281.19	2,342.90
ABVPS (IDR)	2,063.64	2,101.62	2,216.44	2,281.19	2,342.90
NTAPS (IDR)	2,063.64	2,101.62	2,216.44	2,281.19	2,342.90
Valuations and ratios
Reported P/E (x)	10.1	10.1	10.1	10.0	9.8
Normalised P/E (x)	10.1	10.1	10.1	10.0	9.8
FD normalised P/E (x)	10.1	10.1	10.1	10.0	9.8
Dividend yield (%)	7.8	7.8	8.4	8.4	8.5
Price/book (x)	2.0	1.9	1.8	1.8	1.7
Price/adjusted book (x)	2.0	1.9	1.8	1.8	1.7
Net interest margin (%)	7.93	8.11	8.10	7.94	7.77
Yield on assets (%)	10.86	11.60	11.48	11.32	11.14
Cost of int bearing liab (%)	3.37	4.04	3.92	3.92	3.88
Net interest spread (%)	7.49	7.56	7.56	7.41	7.26
Non-interest income (%)	25.1	27.3	23.8	22.5	22.4
Cost to income (%)	42.0	39.8	40.9	40.8	40.7
Effective tax rate (%)	20.9	21.8	20.0	20.0	20.0
Dividend payout (%)	79.1	79.1	84.8	84.0	83.2
ROE (%)	19.7	19.1	18.5	18.0	17.8
ROA (%)	3.14	3.04	2.91	2.76	2.66
Operating ROE (%)	25.2	25.0	23.3	22.7	22.6
Operating ROA (%)	4.01	3.97	3.67	3.48	3.36
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 IDR5,000 based on DuPont analysis with a risk-free rate of 6.5%, an equity risk premium of 7.8%, growth of 9.3%, beta 0.85x and a CAR-adjusted ROAE of 18.0%. We have also used 2025F book as reference. The implied multiples at our TP would be 2.3x 2025F book and 12.5x 2025F earnings. The benchmark for the stock is the JCI.

Risks that may impede the achievement of the target priceDownside risks are worsening macroeconomic trends, unfavorable regulatory changes, and tighter liquidity competition, which could increase funding costs, worsening credit quality which would raise credit costs, and higher opex. Changes in management may affect the bank’s write-off policies and thus, credit costs. This would ultimately affect near-term earnings for the bank.

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.

Fig. 1: BBRI - earnings changes

Source: Company data, Verdhana estimates

Fig. 2: BBRI - loans and deposits

Source: Company data, Verdhana estimates

Fig. 3: BBRI - valuation

BBRI - TP derivation	2025F	Remarks
Risk free rate %	6.5
Equity risk premium %	7.8
Beta (x)	0.85	Up from 0.80x
Cost of equity %	13.1
Normalised growth %	9.3
CAR-adj ROAE %	18.0
Target 12-mth fwd PB	2.3	using 2025F as reference
Implied 12-mth fwd PE	12.5
Implied share price (IDR rounded)	4,976	Rounded to IDR5,000 (from IDR5,400)

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.

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

By accepting this report, the recipient hereof represents and warrants that you are entitled to receive such report in accordance with the restrictions and agrees to be bound by the limitations contained herein. Neither this report nor any copy hereof may be distributed except in compliance with applicable Indonesian capital market laws and regulations.

Rating Table

Rating Remains	Buy
Target price Reduced from IDR 5,400	IDR 5,000
Closing price 12 February 2025	IDR 4,030
Implied upside	+24.1%
Market Cap (USD mn)	36,960.6
ADT (USD mn)	65.3

Relative performance chart

Source: LSEG, Verdhana

M cap (USDmn)	36,960.6
Free float (%)	43.3
3-mth ADT (USDmn)	65.3

(%)	1M	3M	12M
Absolute (IDR)	0.5	-10.4	-33.1
Absolute (USD)	-0.6	-13.6	-36.3
Rel to Jakarta Stock Exchange Composite Index	8.4	0.3	-22.6

Research Analysts

Erwin Wijaya (erwin.wijaya@verdhana.id)

Tags: BANKS, BBRI, BBRI JK, BBRI IJ, Erwin Wijaya

Bank Rakyat Indonesia (BBRI IJ) (Buy) - Slow growth outlook

Slow growth outlook

Key data on Bank Rakyat Indonesia

Fig. 1: BBRI - earnings changes

Fig. 2: BBRI - loans and deposits

Fig. 3: BBRI - valuation

Rating Table

Relative performance chart

Research Analysts

yudi Administrator

Bank Central Asia BBCA IJ - Buy - Solid YTD Jul-24 results

Bank Rakyat Indonesia -BBRI IJ- Buy - Towards more commercial micro

Bank Negara Indonesia BBNI IJ - Buy - Operating 1H24 results were below

Bank Rakyat Indonesia -BBRI IJ- Buy - YTD Jul-24 bank only results - steady progress

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

Bank Central Asia -BBCA IJ- Buy - Steady growth reiterate Buy new TP IDR13200

Bank Rakyat Indonesia (BBRI IJ) (Buy) - Slow growth outlook

Fig. 1: BBRI - earnings changes

Fig. 2: BBRI - loans and deposits

Fig. 3: BBRI - valuation

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