BRIS’s share price has had a good run (YTD +78%), and post-merger, it has reached an all-time high of IDR3,100 (which was our previous target price). Despite this, we reiterate our Buy rating on the stock. We argue that the bank still has plenty of growth drivers, which could predominantly come from providing banking solutions to Indonesia’s Islamic ecosystems. These consist of hajj/umroh, mosques and/or Islamic schools, among others. Some of these are low-hanging fruit, in our opinion, and thus offer long-run growth drivers for the bank – specifically, for hajj/umroh ecosystems, where currently BRIS has “only” ~50% share. We also see significant opportunities in mosque ecosystems where deposit growth opportunities could easily double (refer to Fig. 3 and Fig. 4). Unlike the conventional banking sector, we also argue that BRIS has held unparalleled dominant market positioning that would make it the go-to syariah bank in Indonesia. In this note, we raise our FY24F earnings projections by ~7%, while keeping FY25-26F earnings largely unchanged (refer to Fig. 1). This implies a three-year (FY23-26F) earnings CAGR of ~17% – making it one of the highest among the Indonesian banking stocks under our coverage. Within Indonesian banking stocks, we also think that BRIS would benefit from potentially easing liquidity. Indeed, we estimate ~60% of its earnings assets have fixed-rate structures, which would potentially allow for margin expansion in easing of liquidity in the banking system.
Post these adjustments, we raise our TP to IDR3,800 (from IDR3,100). The upgrade is primarily from rolling forward our reference book to 2025F. At our TP, the stock would trade at a 2025F P/B of 3.3x – not particularly cheap compared to major banks in Indonesia (BMRI / BBRI / BBNI – all rated Buy). However, the premium valuation multiple for BRIS is justified, in our view, given that in the syariah banking space, BRIS holds near monopoly positioning – unlike in the conventional banking sector, where there is an oligopolistic market structure.
Valuation and risks
We derive our new TP of IDR3,800 uses DuPont methodology, with key parameters as follows: a risk-free rate of 6.5%, an equity risk premium of 7.8%, beta of 1.2x and a CAR-adjusted ROAE of 18.1% (from 18.0% previously, to reflect stability improvement driven by the bank’s increased dominance in the syariah banking space). Our TP implies a 2025F P/B of 3.3x and a 2025F P/E of 22.0x. Risks are worsening macroeconomic trends, unfavorable regulatory changes, tighter liquidity competition that could increase funding costs, worsening credit quality that could raise credit costs, material management changes, and/or persistently high opex.
Company profileBank Syariah Indonesia (BSI) is a state-owned Islamic bank in Indonesia. The bank was officially founded on 1 February 2021 as a result of merger between three state-owned sharia banks.The three state-owned sharia banks are subsidiaries of larger banks: BRIsyariah (of Bank Rakyat Indonesia/BBRI), Bank Syariah Mandiri (of Bank Mandiri/BMRI) and BNI Syariah (of Bank Negara Indonesia/BBNI).
Valuation MethodologyWe derive our TP of IDR3,800 using DuPont methodology, with key parameters as follows: a risk-free rate of 6.5%, an equity risk premium of 7.8%, beta of 1.2x, and a CAR-adjusted ROAE of 18.1%. Our TP implies 3.3x FY25F P/B and 22.0x FY25F P/E.
Risks that may impede the achievement of the target priceDownside risks are worsening macroeconomic trends, unfavorable regulatory changes, tighter liquidity competition which could increase funding costs, worsening credit quality which could raise credit costs, and higher opex.
ESGPT Bank Syariah Indonesia (BSI) is committed to implementing the sharia banking principles. The essence of the presence of sharia banking is to carry out sharia goals or Maqasid Ash Syariah, consisting of Hifdz Diin (upholding religion), Hifdz Nafs (nurturing the soul), Hifdz Aql (nurturing logic), Hifdz Nasb (raising offspring), and Hifdz Maal (maintaining wealth). This sharia principle aligns with our commitment in realizing the sustainability context and creating a synergy between growing the Bank’s business and supporting the Sustainable Development Goals (SDGs). The sustainability strategy of BSI is manifested through the making and implementation of Sustainable Finance Action Plan (RAKB). RAKB is prepared by adhering to the Financial Services Authority (POJK) Regulation Number 51/POJK.03/2017 with the priority scale on the aspects of policy adjustments and governance, sustainable finance products and services development, as well as the Bank’s internal capacity building. The sustainable finance strategy focuses on three pillars, which are business refocusing, fixing the fundamental, and strengthen enablers. RAKB also serves as a guideline for all Bank’s work units to control risks, mainly the environmental, social, and governance (ESG) risk.
Fig. 1: BRIS earnings forecast changes
Source: Company data, Verdhana estimates
Fig. 2: BRIS valuation
BRIS - TP derivation
New
OLD
Remarks
Risk free rate %
6.5
6.5
Equity risk premium %
7.8
7.8
Beta x
1.2
1.2
Cost of capital %
16.0
16.0
Growth rate %
15.1
15.1
CAR-adj ROAE %
18.1
18.0
Target P/B x
3.3
3.2
2025F book as reference
Target price IDR
3,817
3,084
Rounded to IDR3,800 (From IDR3,100)
Source: Company data, Verdhana estimates
Fig. 3: Developing an Islamic ecosystem as a total solution
Source: BSI 1H24 presentation
Fig. 4: Venturing into an new avenue: expanding wadiah savings from Hajj ecosystem
Source: BSI 1H24 presentation
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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