Bank Rakyat Indonesia: A Comprehensive Analysis

Date: November 5, 2024

Broker: PT Maybank Sekuritas Indonesia

Introduction

Bank Rakyat Indonesia (BBRI IJ) has been a cornerstone in Indonesia’s banking sector, particularly in micro and ultra-micro lending. This detailed analysis offers an in-depth look at the bank’s current performance, strategic shifts, and future prospects. We also cover the risks and valuation highlights, making this a must-read for investors and financial enthusiasts.

Expecting Slower Growth

We maintain a BUY rating on BBRI but with a lower target price (TP) of IDR5,400. Despite the challenges faced by Micro, Small, and Medium Enterprises (MSMEs), the bank is beginning to look attractive with its current trading at just 2x FY25E P/BV and offering a 6% net dividend yield.

Higher Provisions Weighing on Growth

BBRI’s 9M24 earnings reached IDR45.1 trillion, marking a 2.5% year-on-year increase. This achieved 70%/74% of our/consensus full-year forecast. The earnings were driven by a higher pre-provision operating profit (PPOP) of 10.5% YoY but were dragged down by higher provision expenses, which surged by 28.2% YoY.

Shifting to Corporate Loans and Away from MSMEs

The bank’s lending growth lagged at 8.2% YoY compared to the industry growth of 10.8% YoY. BBRI is shifting its focus towards corporate loans (+16.9% YoY), medium segment loans (+24.6% YoY), and consumer loans (+10.0% YoY), while reducing its exposure to the micro (+6.4% YoY) and small (+1.1% YoY) segments. This strategy aims to focus on lower-risk lending, thereby managing asset quality but at the cost of lower yields.

Higher Recovery to Boost Non-Interest Income

Stronger non-interest income, which grew by 29.8% YoY for 9M24, was a key driver of earnings growth. Recovery income soared by 63.4% YoY, fees and commissions by 10.3% YoY, and gains from the sale of securities by 9.7% YoY. We believe this trend will continue to support earnings growth as the bank’s significant write-off of IDR33.5 trillion in 9M24 should help increase recovery income.

Share Price and Valuation

Currently, BBRI’s share price stands at IDR4,720 with a 12-month price target of IDR5,400, representing a 19% potential upside. The bank’s 52-week high/low is IDR6,400/4,100, with a market capitalization of IDR715.4 trillion (USD45.4 billion). The government of Indonesia remains the major shareholder, owning 53.2% of the issued shares.

Price Performance and Financial Metrics

The bank’s financial metrics indicate resilience, with a strong deposit growth and a CET 1 of 23.9%, allowing room for lending growth. However, CASA fell to 61%, which may increase funding costs amid rising interest rates. The high micro lending yield is expected to play an integral part in maintaining ROE resilience amid a high interest rate environment.

Value Proposition

BBRI has a dominant position in the ultra-micro and micro lending segments, which are high-margin areas. Improving cost efficiency is helping to offset rising funding costs, thus maintaining a resilient ROE. The bank’s extensive coverage in a country with low banking penetration gives it an advantage in raising funding to improve its liquidity condition.

Financial Highlights

Operating Income

BBRI’s operating income for FY22A was IDR176,615 billion, and it is projected to grow to IDR236,420 billion by FY26E. The bank’s pre-provision profit for FY22A was IDR91,694 billion, expected to reach IDR128,504 billion by FY26E. Core net profit for FY22A was IDR51,170 billion, projected to grow to IDR72,551 billion by FY26E.

Core EPS and Dividend Yield

The bank’s core EPS for FY22A was IDR338, which is expected to increase to IDR479 by FY26E. The net dividend yield stood at 5.2% in FY22A and is projected to rise to 6.4% by FY26E, reflecting a stable dividend payout policy.

Loan Composition and Quality

BBRI’s loan composition in FY23 was diverse, with corporate loans at 17%, medium at 2%, small at 18%, consumer at 15%, and BRI Micro at 38%. The loan quality remains a focus, with gross NPL at 2.9% in 9M24 and NPL coverage at 215.4%. The bank aims to continue improving its asset quality through strategic lending shifts.

Strategic Shifts and Future Outlook

BBRI’s strategy to shift towards corporate and medium segment loans while reducing exposure to micro and small segments aims to manage asset quality effectively. This shift may result in lower yields, but it is expected to stabilize the bank’s financial health in the long term. The bank’s focus on recovery income and non-interest income growth will continue to support its earnings trajectory.

Environmental, Social, and Governance (ESG) Initiatives

BBRI has made significant strides in its ESG initiatives, receiving an “A” rating in the MSCI ESG Rating and scoring 63 in the S&P Global corporate sustainability assessment. The bank issued the first Sustainability Bond in Indonesia in March 2019, valued at USD500 million with a 3.95% coupon and a 5-year tenor. This bond funds projects with social and environmental impacts.

Conclusion

Bank Rakyat Indonesia continues to be a dominant player in the Indonesian banking sector, especially in the micro and ultra-micro lending segments. Despite the challenges, the bank’s strategic shifts and focus on quality lending, along with its robust ESG initiatives, make it an attractive investment. With a stable dividend yield and resilient financial metrics, BBRI offers a promising outlook for investors.