Date: October 21, 2024
Broker: CGS International Securities
Key Takeaways from Kuala Lumpur Non-Deal Roadshow (NDR)
- Event: CGS International hosted Bank Syariah Indonesia (BRIS) management on a non-deal roadshow in Kuala Lumpur from October 15-17, 2024.
- Main Topics: The discussions focused on BRIS’s gold business, bancassurance collaboration, and funding improvements via Hajj savings accounts.
- Outlook: BRIS is expected to deliver strong results from FY2024 to FY2026, with the highest EPS compound annual growth rate (CAGR) among major Indonesian banks. The recommendation to “Add” remains, with a target price (TP) of Rp3,700.
Gold Business: A New Growth Engine
- Focus on Gold Instalments: BRIS has shifted its business model to prioritize gold instalment products over gold pawning, aiming to leverage a large customer base and lower funding costs. The loan balance for this segment was Rp11 trillion as of September 2024, and the target is Rp13 trillion by the end of FY2024, rising to Rp20 trillion by FY2025.
- Long-Term Goals: Over the next five years, BRIS aims for the gold business loan balance to reach Rp60-70 trillion. The current loan yield for this business is approximately 13%, higher than the 10% yield for payroll loans.
- Investor Interest: During the NDR, investors were keen on BRIS’s unique positioning compared to Pegadaian (its non-listed competitor), with BRIS focusing more on instalments, benefiting from a 21 million-strong customer base.
- Partnership and Risk Management: BRIS partners with Antam (ANTM.JK) to supply gold and reduces inventory risk by purchasing gold only after customer agreements. The bank also explores opportunities to earn additional fees from gold storage services and commissions from Antam.
Bancassurance Partnership with Prudential Sharia
- New Collaboration: BRIS has entered into an exclusive 15-year agreement with Prudential Sharia, marking its entry into the bancassurance business. This partnership aims to diversify income streams by offering insurance products to BRIS’s customers.
- Income Structure: The partnership includes two types of fees: upfront, unconditional fees, and deferred fees spread over six years. Prudential will station staff in BRIS branches to help promote these products.
- Strategic Advantage: BRIS was the only major Indonesian bank without a bancassurance partnership until this agreement, positioning it to grow its fee-based income significantly.
Funding Improvement via Hajj Savings Accounts
- Low-Cost Funding Access: BRIS uses Hajj savings accounts to improve its cost of funds. With an 85% share in the Sharia banking market, BRIS leads in this segment. The savings accounts benefit from the long waiting list for Hajj pilgrimages, which can extend up to 20 years, providing stable, low-cost deposits.
- Customer Engagement: The bank has increased its efforts to expand this customer base, leading to growth in the average savings balance, which stands at Rp3 million per account, with a total of Rp15 trillion deposited.
Financial Performance and Future Outlook
- Positive Market Reception: Feedback from investors during the NDR was positive, supporting the bank’s plans for growth across its business segments.
- Financial Projections: The bank anticipates solid results in FY2024-FY2026, with potential re-rating triggers including better-than-expected net interest margins (NIM) and stronger loan growth. However, risks include pressure on NIM and potential declines in loan quality.
- Price Performance: As of October 21, 2024, BRIS’s stock price was Rp3,080, with a target price of Rp3,700, reflecting a 20.1% upside. The bank’s market capitalization is approximately US$9,178 million.
ESG Initiatives
- ESG Scores: BRIS received a combined ESG score of C+ from LSEG in 2021, with specific grades of B for Social, C for Governance, and B- for Environmental factors.
- Green Financing: The bank has a growing portfolio of green financing, accounting for 24% of its loan book (Rp57.7 trillion as of December 2023). Despite a lower environmental score, BRIS is actively seeking improvements through initiatives like green building standards and partnerships.
- Social Impact: BRIS also focuses on collecting zakat (social aid) from corporate and individual customers, aligning with broader social and ethical commitments.
Shareholding Structure and Recommendations
- Major Shareholders: Bank Mandiri holds 51.5%, Bank Negara Indonesia 23.2%, and Bank Rakyat Indonesia 15.4% of BRIS shares.
- Analyst View: CGS International analysts reiterate an “Add” recommendation for BRIS, citing its robust strategic positioning and growth prospects across multiple segments.
