Major Indonesia banks (namely BBCA, BBRI, BBNI and BMRI – all rated Buy) and BRIS (rated Buy) will kick off their 1Q25 results reporting season next week. We anticipate resilient profit trends despite a still challenging macroeconomic environment amid tight liquidity as well as soft purchasing power and/or economic trajectory. As depicted in the charts below, money supply (M2) rose by ~6% y-y as of YTD Feb-25 (well below the 15-year average annual growth trajectory of ~10%). With loan growth trajectory at ~8-10% y-y (Feb-25 growth was at ~9% y-y), this brings system LDR to ~95%. This suggests that the cost of funds for banks will remain stubbornly elevated. Thankfully, we think this is not worsening, and thus we think funding costs remain stable. Also, we estimate there will be SRBI maturities in 2Q25F of ~IDR287tn, which is larger than 1Q25 gross SRBI maturities of ~IDR178tn. With stable funding costs, this suggests that banks’ margins are likely to be more stable than in the past 36 months. Indeed, in the past 12 months, average margins for major banks have stood at ~5.8%. We think in the next 12 months, this is likely to be sustained, resulting in better earnings profiles. That is, in spite of our anticipation of slower loan growth in 2025 than in 2024 for these banks; their earnings growth trajectory should improve in 2025F (with the exception of BBRI, as the bank is still grappling with weak asset quality the in mass-market segments).

In the upcoming 1Q25F results, we expect combined PPOP and net profit from major banks of IDR80.2tn (+2% y-y) and IDR47.3tn (+1% y-y), respectively. BBRI could be the main drag with its projected 1Q25F profit declining by ~6% y-y, largely due to soft operating results in its mass-market segments; this is largely due to a significant jump in credit costs as we have seen in its bank-only Jan-25 results. Among the major banks, BBCA may have the highest growth of both PPOP and net profit of ~8% y-y. Meanwhile, we anticipate BRIS to deliver superior earnings growth than its major peers. We expect 1Q25F PPOP and net profit growth for BRIS at ~7% and ~9% y-y. BRIs holds a unique position in the syariah banking space which should allow it to gain further market share, but the bank also sees increased benefits from growing interest in gold investments. Indeed, we estimate that the bank is now handling approx. ~100kg of daily gold investments which would represent more than 50% growth y-y. These should increase gold-related fee income to ~IDR1.5tn in 2025F. Longer term, we expect growing revenue/income and net profit contribution from its bullion banking status. On a y-y basis, we estimate 1Q25F net profit growth from BRIS and BBCA to be the highest at ~9% and ~8% y-y, respectively, followed by BBNI (~4%), BMRI (~2%), while BBRI projected to report a net profit decline of ~-6% y-y.

Given the above, BBCA, BMRI, and BRIS continue to be our preferred banking stocks. These banks have continued to see superior loan growth (primarily driven by their corporate customers as well as better funding costs, particularly for saving deposits). Indeed, they have also demonstrated most visible growth in saving deposits. These reflect its successful strategy to capture business downward value chains with low funding costs.

Valuations and risks

BBCA – We derive our TP of IDR12,600 using DuPont analysis with key parameters as follows: a risk-free rate of 6.5%, an equity risk premium of 7.8%, beta of 0.8x and a CARadjusted ROAE of 24.5%. Our TP implies 5.4x FY25F P/B (vs current price valuation of 3.6x) and a FY25F P/E of 26.0x (vs current price valuation of 21.0x). Key downside risks are worsening economic trends, tighter liquidity competition, and/or higher credit cost and opex growth.

BMRI – We derive our TP of IDR7,600 based on a DuPont analysis, assuming a risk-free rate of 6.5%, an equity risk premium of 7.8%, growth of 11.0%, beta 1.05x and a CARadjusted ROAE of 19.5%. We also use 2025F book as reference. The implied multiples at our TP are 2.3x 2025F book and 12.4x 2025F earnings (compared to current multiples of 1.4x and 7.5x, respectively). Key risks to our view are worsening macroeconomic trends, unfavorable regulatory changes, tighter liquidity competition (which would increase funding costs), worsening credit quality (which would raise credit costs), and higher opex.

BBRI – Our TP of IDR5,000 is based on DuPont analysis, with a risk-free rate of 6.5%, an equity risk premium of 7.8%, ROE growth of 9.3%, a beta of 0.85x and a CAR-adjusted ROAE of 18.0%. We also use 2025F book value as a reference. The implied multiples at our TP are 2.3x 2025F BVPS and 12.5x 2025F EPS (vs current multiples of 1.7x and 9.4x respectively). Downside risks include worsening macroeconomic trends, unfavorable regulatory changes and tighter liquidity competition which could increase funding costs. Changes in management may affect the bank’s writeoff policies and thus, credit costs. This would ultimately affect the bank’s near-term earnings, in our view.

BBNI – We derive our TP of IDR6,250 based on a DuPont analysis, assuming a risk-free rate of 6.5%, an equity risk premium of 7.8%, growth of 8.5%, beta 1.0x and a CARadjusted ROAE of 16.5%. We also use 2025F book as reference. The implied multiples at our TP are 1.3x 2025F book and 10.6x 2025F earnings (compared to current multiples of 0.9x and 6.9x, respectively). Key risks to our view are worsening macroeconomic trends, unfavorable regulatory changes, and tighter liquidity competition (which would increase funding cost), and worsening credit quality (which would raise credit costs), and higher opex.

BRIS – We 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 CARadjusted ROAE of 18.1%. We have also used 2025F book value in deriving our TP. Our TP implies a FY25F P/B of 3.4x and a FY25F P/E of 21.5x (vs current multiples of 2.3x and 14.4x respectively). 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.

Fig. 1: M2 and M1 money growth (y-y%)

Fig. 2: LDR

Fig. 3: Gross SRBI maturities (IDRbn)

Fig. 4: Major banks Ave NIM %

Fig. 5: Major banks earnings preview

Fig. 6: Major banks valuation

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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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.

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Erwin Wijaya (erwin.wijaya@verdhana.id)