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

ROAE uptrend on positive micro trends

Rolling forward to 2025F book-value; raise TP to IDR6,300

We turn more positive on BBRI

Based on Indonesia government’s latest 2025 budget, BBRI will potentially have less exposure to KURs (and hence increased exposure to commercial-based Kupedes micro loans), in our view. We view this as a positive for the bank, as Kupedes ROAAs are generally higher than that of KUR. Combine this with the likely easing of downgrade/write-off risks in the next 12 months in our view, we believe earnings downside risks for BBRI will likely be lower. In addition, expectations of BI cutting interest rate and issuing fewer Bank Indonesia Rupiah Securities (SRBI) should enable BBRI to register lower funding costs (and hence potentially better NIM trends or at least minimize NIM risk). On the back of the aforementioned attributes, we retain our Buy rating on the stock with a higher TP of IDR6,300 (rolling forward to 2025F book). The stock’s relative underperformance vs other large-cap bank peers in the past three years also poses limited downside risks from current levels.

Valuation and risks

We derive our new TP of IDR6,300 (IDR6,000 previously) based on a DuPont analysis, assuming a risk-free rate of 6.5%, an equity risk premium of 7.8%, growth of 10.0%, beta 0.8x and a CAR-adjusted ROAE of 18.0%. We also use 2025F book as reference. The implied multiples at our TP are 2.9x 2025F book and 14.8x 2025F earnings (compared to current multiples of 2.0x and 10.7x, 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.

Fig. 1: BBRI valuation

BBRI - TP derivation	2025F	Remarks
Risk free rate %	6.5
Equity risk premium %	7.8
Beta (x)	0.8
Cost of equity %	12.7	Down from 12.8
Normalised growth %	10.0
CAR-adj ROAE %	18.0
Target 12-mth fwd PB	2.9	using 2025F as reference
Implied 12-mth fwd PE	14.8
Implied share price (IDR rounded)	6,309	Rounded to IDR6,300 (from IDR6,000)

Source: Company data, Verdhana estimates

Forecast Table

Year-end 31 Dec	FY23		FY24F		FY25F		FY26F
Currency (IDR)	Actual	Old	New	Old	New	Old	New
PPOP (bn)	106,352	115,175	115,175	120,977	120,977	126,757	126,757
Reported net profit (bn)	60,100	61,848	61,848	64,590	64,590	67,236	67,236
Normalised net profit (bn)	60,100	61,848	61,848	64,590	64,590	67,236	67,236
FD normalised EPS	398.24	409.82	409.82	427.99	427.99	445.52	445.52
FD norm. EPS growth (%)	17.8	2.9	2.9	4.4	4.4	4.1	4.1
FD normalised P/E (x)	12.9	–	12.6	–	12.0	–	11.6
Price/adj. book (x)	2.5	–	2.4	–	2.3	–	2.2
Price/book (x)	2.5	–	2.4	–	2.3	–	2.2
Dividend yield (%)	6.1	–	6.2	–	6.4	–	6.6
ROE (%)	19.7	19.4	19.4	19.4	19.4	19.3	19.3
ROA (%)	3.1	3.0	3.0	2.9	2.9	2.7	2.7

Source: Company data, Verdhana estimates

Key data on Bank Rakyat Indonesia

Profit and loss (IDRbn)
Year-end 31 Dec	FY22	FY23	FY24F	FY25F	FY26F
Interest income	160,812	188,075	202,096	216,436	231,543
Interest expense	-34,637	-50,730	-51,345	-57,550	-62,978
Net interest income	126,174	137,345	150,751	158,886	168,564
Net fees and commissions	18,795	20,738	22,009	24,210	24,348
Trading related profits	2,650	2,301	2,250	2,000	2,000
Other operating revenue	25,858	22,906	22,000	21,000	20,000
Non-interest income	47,303	45,945	46,259	47,210	46,348
Operating income	173,477	183,290	197,010	206,096	214,912
Depreciation	-3,615	-3,726	-4,026	-4,266	-4,388
Amortisation	0	0	0	0	0
Operating expenses	-38,781	-35,362	-38,522	-40,352	-42,251
Employee share expense	-39,390	-37,850	-39,287	-40,500	-41,516
Pre-provision op profit	91,691	106,352	115,175	120,977	126,757
Provisions for bad debt	-27,385	-29,523	-36,472	-38,735	-41,087
Other provision charges	0	0	0	0	0
Operating profit	64,306	76,829	78,703	82,242	85,670
Other non-op income	291	-399	0	0	0
Associates & JCEs	0	0	0	0	0
Pre-tax profit	64,597	76,430	78,703	82,242	85,670
Income tax	-13,188	-16,005	-16,481	-17,222	-17,940
Net profit after tax	51,408	60,425	62,222	65,020	67,731
Minority interests	-238	-325	-374	-430	-495
Other items	0	0	0	0	0
Preferred dividends	0	0	0	0	0
Normalised NPAT	51,170	60,100	61,848	64,590	67,236
Extraordinary items	0	0	0	0	0
Reported NPAT	51,170	60,100	61,848	64,590	67,236
Dividends	-35,028	-47,558	-48,102	-49,479	-51,672
Transfer to reserves	16,142	12,541	13,746	15,112	15,564
Growth (%)
Net interest income	9.6	8.9	9.8	5.4	6.1
Non-interest income	14.8	-2.9	0.7	2.1	-1.8
Non-interest expenses	0.5	-8.8	8.9	4.8	4.7
Pre-provision earnings	19.2	16.0	8.3	5.0	4.8
Net profit	66.4	17.5	2.9	4.4	4.1
Normalised EPS	66.4	17.8	2.9	4.4	4.1
Normalised FDEPS	66.4	17.8	2.9	4.4	4.1
Loan growth	9.5	12.9	4.2	10.2	10.0
Interest earning assets	10.4	4.1	8.4	10.3	10.6
Interest bearing liabilities	12.6	4.6	9.0	11.8	11.8
Asset growth	11.2	5.3	7.8	10.1	10.2
Deposit growth	14.9	3.9	7.5	12.5	12.5
Source: Company data, Verdhana estimates

Balance sheet (IDRbn)
As at 31 Dec	FY22	FY23	FY24F	FY25F	FY26F
Cash and equivalents	27,407	31,604	34,831	39,185	44,083
Inter-bank lending	0	0	0	0	0
Deposits with central bank	150,935	101,909	112,316	126,355	142,150
Total securities	381,257	364,605	445,974	484,097	536,231
Other int earning assets	91,870	87,545	91,087	105,018	121,057
Gross loans	1,134,313	1,260,852	1,317,528	1,449,281	1,594,209
Less provisions	-88,324	-79,924	-87,171	-92,855	-101,889
Net loans	1,045,989	1,180,927	1,230,357	1,356,426	1,492,319
Long-term investments	6,507	7,305	457	574	715
Fixed assets	55,216	59,678	60,652	61,386	57,097
Goodwill	0	0	0	0	0
Other intangible assets	0	0	0	0	0
Other non IEAs	106,458	131,433	142,520	158,272	175,994
Total assets	1,865,639	1,965,007	2,118,194	2,331,313	2,569,646
Customer deposits	1,307,884	1,358,329	1,460,203	1,642,729	1,848,070
Bank deposits, CDs, debentures	82,944	80,675	117,677	132,387	148,935
Other int bearing liabilities	79,873	99,347	99,347	99,347	99,347
Total int bearing liabilities	1,470,701	1,538,352	1,677,228	1,874,463	2,096,352
Non-int bearing liabilities	91,543	110,183	110,374	110,717	111,102
Total liabilities	1,562,244	1,648,535	1,787,602	1,985,179	2,207,454
Minority interest	4,101	5,109	5,483	5,913	6,407
Common stock	83,215	83,431	83,431	83,431	83,431
Preferred stock	0	0	0	0	0
Retained earnings	201,170	213,711	227,458	242,569	258,133
Reserves for credit losses	0	0	0	0	0
Proposed dividends	0	0	0	0	0
Other equity	14,909	14,221	14,221	14,221	14,221
Shareholders' equity	299,294	311,364	325,110	340,221	355,785
Total liabilities and equity	1,865,639	1,965,007	2,118,194	2,331,313	2,569,646
Non-perf assets	30,405	37,386	41,125	45,237	49,761
Balance sheet ratios (%)
Loans to deposits	86.7	92.8	90.2	88.2	86.3
Equity to assets	16.0	15.8	15.3	14.6	13.8
Asset quality & capital
NPAs/gross loans (%)	2.7	3.0	3.1	3.1	3.1
Bad debt charge/gross loans (%)	2.41	2.34	2.77	2.67	2.58
Loss reserves/assets (%)	4.73	4.07	4.12	3.98	3.97
Loss reserves/NPAs (%)	290.5	213.8	212.0	205.3	204.8
Tier 1 capital ratio (%)	16.5	17.4	15.2	14.2	16.2
Total capital ratio (%)	17.2	18.2	16.0	14.9	16.9
Per share
Reported EPS (IDR)	338.01	398.33	409.92	428.09	445.62
Norm EPS (IDR)	338.01	398.33	409.92	428.09	445.62
FD norm EPS (IDR)	337.96	398.24	409.82	427.99	445.52
DPS (IDR)	231.38	315.20	318.81	327.93	342.47
PPOP PS (IDR)	605.67	704.87	763.35	801.81	840.12
BVPS (IDR)	1,977.02	2,063.64	2,154.74	2,254.90	2,358.05
ABVPS (IDR)	1,977.02	2,063.64	2,154.74	2,254.90	2,358.05
NTAPS (IDR)	1,977.02	2,063.64	2,154.74	2,254.90	2,358.05
Valuations and ratios
Reported P/E (x)	15.2	12.9	12.6	12.0	11.6
Normalised P/E (x)	15.2	12.9	12.6	12.0	11.6
FD normalised P/E (x)	15.2	12.9	12.6	12.0	11.6
Dividend yield (%)	4.5	6.1	6.2	6.4	6.6
Price/book (x)	2.6	2.5	2.4	2.3	2.2
Price/adjusted book (x)	2.6	2.5	2.4	2.3	2.2
Net interest margin (%)	7.80	7.93	8.19	7.89	7.58
Yield on assets (%)	9.94	10.86	10.98	10.75	10.41
Cost of int bearing liab (%)	2.50	3.37	3.19	3.24	3.17
Net interest spread (%)	7.45	7.49	7.79	7.51	7.24
Non-interest income (%)	27.3	25.1	23.5	22.9	21.6
Cost to income (%)	47.1	42.0	41.5	41.3	41.0
Effective tax rate (%)	20.4	20.9	20.9	20.9	20.9
Dividend payout (%)	68.5	79.1	77.8	76.6	76.9
ROE (%)	17.4	19.7	19.4	19.4	19.3
ROA (%)	2.89	3.14	3.03	2.90	2.74
Operating ROE (%)	21.9	25.2	24.7	24.7	24.6
Operating ROA (%)	3.63	4.01	3.85	3.70	3.50
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 IDR6,300 using Dupont methodology, 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 CAR-adj ROAE of 18.0%. We have also used 2025F book as reference. Our TP implies 2.9x FY25F P/B and 14.8x FY25F P/E. The benchmark for the stock is the JCI.

Risks that may impede the achievement of the target priceKey downside risks to our call are: 1) worsening economic trends, 2) unfavorable regulatory changes, 3) tighter liquidity competition which could increase funding costs, 4) worsening credit quality which would raise credit costs, and/or 4) higher opex.

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.

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 Increased from IDR 6,000	IDR 6,300
Closing price 28 August 2024	IDR 5,150
Implied upside	+22.3%
Market Cap (USD mn)	50,111.8
ADT (USD mn)	76.1

Stock Chart Data

Source: LSEG, Verdhana

M cap (USDmn)	50,111.8
Free float (%)	43.3
3-mth ADT (USDmn)	76.1

(%)	1M	3M	12M
Absolute (IDR)	8.2	13.7	-7.2
Absolute (USD)	14.3	18.6	-8.0
Rel to Jakarta Stock Exchange Composite Index	3.9	8.9	-17.0

Research Analysts

Indonesia Research Team

Nicholas Santoso (nicholas.santoso@verdhana.id)

Erwin Wijaya (erwin.wijaya@verdhana.id)

Tags: Banks, BBRI, BBRI JK, BBRI IJ, Nicholas Santoso, Erwin Wijaya

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

ROAE uptrend on positive micro trends

Fig. 1: BBRI valuation

Forecast Table

Key data on Bank Rakyat Indonesia

Rating Table

Stock Chart Data

Research Analysts

Indonesia Research Team

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

Bank Mandiri -BMRI IJ- Buy - Better stability in ROE ROA Re-rating to continue

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

Fig. 1: BBRI valuation

Indonesia Research Team

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