BBRI
Contact our analyst Lingga
Micro is beautiful,6% upside. HOLD.
18th September 2019
Price Rp4,250
Target price Rp4,500
Unaffected by IFRS 9 implementation
- BBRI estimates a mere approximately 100bps impact on its CAR if the IFRS 9 provision adjustment is taken from the retained earnings (~Rp8-10tn).
- The bank also stated that it will still have an ample capital buffer after the IFRS 9 implementation. On Provision Coverage, BBRI will focus more on the micro, individual (<Rp5bn loan size), and corporate segments by adding ~Rp8-10tn with a target of providing 230-240% coverage by 2020.
- BBRI expects their cost of credit to go down even more. Their 2019 cost of credit target is 1.9-2.1% and in 2020 it is expected to be 1.9-2%.
Corporate segment’s high NPL
- To generate better profits, BBRI has been lending to the medium and corporate credit segments. The medium credit segment has been limited in terms of potential market compared to large corporations which is a much larger potential market.
- In 2016-2018 the corporate segment NPL is an average of 5.7% which is quite large. As a result, the corporate loans are rarely written off and instead get restructured.
Focused on Micro Loan
- To generate more Micro Loan growth, BBRI has launched several micro initiatives including digital cellular applications called BRILink and BRISpot.
- The implementation of BRISpot is expected to increase the number of borrowers generated by each loan officer to 400 from currently 340.
- With the new initiatives already running, the number of Micro Loan borrowers is targeted to increase from 4-5% per year to 7%. Cost efficiency will likely improve due to the initiatives, although the benefit will only start to be reflected in the cost structure in the medium term.
- Currently deposits from BRILink are around Rp5.3tn but the bank still sees a lot of room to grow.
- For the agents, BBRI provides EDC to do business transactions (meaning more investment spending for BBRI) or the agents can install the BRI application on their mobile phone (0% cost for BRI). Referral of new borrowers is around 8k from BRILink agents.
Valuation: 6% Upside, HOLD.
- Based on our DDM Valuation, we have a 1-year target price of Rp4,500 on BBRI which is a valuation of 2x PBV and gives 6% potential upside. HOLD.
