BBRI
Contact our analyst Achmadi Hangradhika
15% UPSIDE, BUY
19th November 2024
Price Rp 4,360
Target price Rp 5,025
BBRI’s Profit Growth Weakens Amid Rising Costs and Declining NIM
In the first nine months of 2024, PT Bank Rakyat Indonesia (BRI) reported a modest 2.44% year-over-year (YoY) growth in consolidated net income attributable to the parent entity. This limited growth was primarily due to a substantial 40.20% YoY increase in interest expenses, which outpaced the 12.81% YoY rise in interest income. As a result, BRI’s net interest margin (NIM) declined to 7.70%, down 42 basis points YoY. However, a significant 182.92% YoY gain in net foreign exchange income partially offset the impact of rising costs. Operating expenses (OPEX) rose by 10.60% YoY, driven by higher amortization and SAP module implementation costs. For the full year 2024, we forecast a 7.09% YoY growth in net income attributable to the parent entity, with NIM projected to end at 7.73%, reflecting a 22-basis-point decline compared to 2023.
September 2024: Strong Loan Growth, yet Below Expectations
As of September 2024, BRI’s consolidated loan portfolio expanded by 8.21% YoY, demonstrating strong growth but falling short of internal targets and Q2-2024 levels. Loan growth was led by the corporate banking segment, which increased by 15.73% YoY, driven by the manufacturing sector (19.1% of total loans) and investment loans (55.8% of corporate loans). In the BRI micro segment, growth was limited to 3.31% YoY due to tightened credit standards and a focus on improving asset quality. Meanwhile, the Ultra Micro segment, including subsidiaries Pegadaian and PNM, grew by 6.25% YoY, with Pegadaian recording a 26.5% YoY increase and PNM a 7.9% YoY rise. By December 2024, we project BRI’s consolidated loan portfolio to grow by 9.17% YoY, remaining below target.
Customer Deposits Show Significant Growth
By September 2024, BRI’s consolidated customer deposits increased by 5.59% YoY. This growth was primarily driven by a 11.05% YoY surge in Current Accounts and a 4.06% YoY rise in Time Deposits. Savings Accounts saw lower growth of 3.62% YoY. The strong growth in Current Accounts contributed to a 6.47% YoY increase in CASA (Current Account Savings Account), with the CASA ratio rising to 64.17% (up 100 bps quarter-over-quarter and 53 bps year-over-year). We forecast customer deposits to grow by 1.69% YoY by December 2024, with the CASA ratio reaching 63.99%.
Loan Quality Strengthens Despite Micro Segment Challenges
As of September 2024, BRI’s consolidated gross non-performing loan (NPL) ratio improved to 2.90%, a 17-basis-point YoY decrease. The bank-only gross NPL ratio stood at 3.04%, down 19 basis points YoY. The corporate banking segment showed the most significant improvement, with its NPL ratio dropping by 214 bps YoY to 2.52%. Conversely, the micro loan segment faced further challenges, as its NPL ratio rose by 62 bps YoY to 3.03%. Restructuring efforts played a key role in asset quality improvement, with over IDR 18 trillion in loans restructured during the first nine months of 2024. Restructured loans rose by 33%, from IDR 8.3 trillion YoY to IDR 33.5 trillion. By year-end 2024, we project the consolidated gross NPL ratio to decline to 2.84%, while the bank-only NPL ratio is expected to fall to 3.02%.
Valuation: 15%, Upside, Buy Recommendation
Using a Dividend Discount Model (DDM) valuation, we have revised our one-year target price to IDR 5,025, implying a Price-to-Book Value (PBV) of 1.98x and a potential upside of 15%. We maintain a Buy recommendation for BBRI.
In the first nine months of 2024, PT Bank Rakyat Indonesia (BRI) reported a modest 2.44% year-over-year (YoY) growth in consolidated net income attributable to the parent entity. This limited growth was primarily due to a substantial 40.20% YoY increase in interest expenses, which outpaced the 12.81% YoY rise in interest income. As a result, BRI’s net interest margin (NIM) declined to 7.70%, down 42 basis points YoY. However, a significant 182.92% YoY gain in net foreign exchange income partially offset the impact of rising costs. Operating expenses (OPEX) rose by 10.60% YoY, driven by higher amortization and SAP module implementation costs. For the full year 2024, we forecast a 7.09% YoY growth in net income attributable to the parent entity, with NIM projected to end at 7.73%, reflecting a 22-basis-point decline compared to 2023.
September 2024: Strong Loan Growth, yet Below Expectations
As of September 2024, BRI’s consolidated loan portfolio expanded by 8.21% YoY, demonstrating strong growth but falling short of internal targets and Q2-2024 levels. Loan growth was led by the corporate banking segment, which increased by 15.73% YoY, driven by the manufacturing sector (19.1% of total loans) and investment loans (55.8% of corporate loans). In the BRI micro segment, growth was limited to 3.31% YoY due to tightened credit standards and a focus on improving asset quality. Meanwhile, the Ultra Micro segment, including subsidiaries Pegadaian and PNM, grew by 6.25% YoY, with Pegadaian recording a 26.5% YoY increase and PNM a 7.9% YoY rise. By December 2024, we project BRI’s consolidated loan portfolio to grow by 9.17% YoY, remaining below target.
Customer Deposits Show Significant Growth
By September 2024, BRI’s consolidated customer deposits increased by 5.59% YoY. This growth was primarily driven by a 11.05% YoY surge in Current Accounts and a 4.06% YoY rise in Time Deposits. Savings Accounts saw lower growth of 3.62% YoY. The strong growth in Current Accounts contributed to a 6.47% YoY increase in CASA (Current Account Savings Account), with the CASA ratio rising to 64.17% (up 100 bps quarter-over-quarter and 53 bps year-over-year). We forecast customer deposits to grow by 1.69% YoY by December 2024, with the CASA ratio reaching 63.99%.
Loan Quality Strengthens Despite Micro Segment Challenges
As of September 2024, BRI’s consolidated gross non-performing loan (NPL) ratio improved to 2.90%, a 17-basis-point YoY decrease. The bank-only gross NPL ratio stood at 3.04%, down 19 basis points YoY. The corporate banking segment showed the most significant improvement, with its NPL ratio dropping by 214 bps YoY to 2.52%. Conversely, the micro loan segment faced further challenges, as its NPL ratio rose by 62 bps YoY to 3.03%. Restructuring efforts played a key role in asset quality improvement, with over IDR 18 trillion in loans restructured during the first nine months of 2024. Restructured loans rose by 33%, from IDR 8.3 trillion YoY to IDR 33.5 trillion. By year-end 2024, we project the consolidated gross NPL ratio to decline to 2.84%, while the bank-only NPL ratio is expected to fall to 3.02%.
Valuation: 15%, Upside, Buy Recommendation
Using a Dividend Discount Model (DDM) valuation, we have revised our one-year target price to IDR 5,025, implying a Price-to-Book Value (PBV) of 1.98x and a potential upside of 15%. We maintain a Buy recommendation for BBRI.
Previously
