Contact our analyst Lingga
18% UPSIDE, Hold
3rd November, 2021
Target price Rp5,050
Higher profit from lower cost of funds
In 9M21, net profit grew to IDR 19,070 billion driven by a significant decrease in interest expense, down by IDR 19.3 trillion or -35.2% YoY and non-interest income which rose 16.8% YoY but was still dragged by higher provision expenses which increased by more than 50% YoY. Provision costs remain high as NPLs rise but at a slower pace which has been decreasing gradually, and is a good sign. BBRI's net profit was dragged down by BRI Agro's net loss of IDR 1,800 billion in 9M21. BRI Agro is currently turning to digital banking and divesting its legacy business, resulting in heavy losses. This means that the net profit contribution from Pegadaian and PNM is IDR 641.6 billion.
Credit Growth from Micro KUR
Consolidated credit growth increased to 13% YoY, driven by the entry of PNM and Pegadaian. Bank credit growth alone also rose quite strongly by 6% YoY, supported by micro loan growth of 15% YoY with a proportion of 41% of the bank-only total. BBRI's micro-loans 12 million borrowers are now combined with Permodalan Nasional's 10m Madani borrowers (PNM) and 8m Pegadaian borrowers. BBRI is optimizing the role of BRILink Agents to become the main channel for the ultra-micro segment under the UMi ecosystem and a facilitator of O2O business in rural areas. This can increase the acquisition of ultra-micro loans along and overall efficiency.
Asset Quality and restructuring
NPL increased slightly to 3.28% from 3.12% driven by the increase in current restructured loans and SML. NPLs in SOEs increased to 0.6% from 1.2% in 2Q21 due the removal of IDR 0.5 trillion from the RNI group. The coverage of loan losses has now reached 250% of the total NPLs. BBRI will provide full loan loss coverage to the Garuda group at the end of the year. BBRI noted that 22% of the total restructured loans have begun to pay interest and principal. As a result, the balance of the Covid-19 restructuring loans fell to IDR 166.2 trillion in Sept., down from IDR 175.2 trillion in the previous quarter and IDR 193.7 trillion in the same period last year.
Valuation: 18%, Upside, Hold
Based on our DDM Valuation, we have a target price within one year of IDR. 5,050 or trading at 3,1x PBV which gives 18% potential upside, Hold.