PT Bank Rakyat Indonesia (Persero) Tbk is an Indonesia-based banking company. The Company focuses on micro, small and medium enterprises (MSME) and microfinance in Indonesia. Its savings products include Simpedes, BritAma, BritAma Bisnis, BritAma X, Simpedes TKI, Hajj Pilgrimage Savings Account, BritAma Rencana, BritAma Valas, Junio, Tabungan BRI Simpel and TabunganKu. The Company’s time deposits include Rupiah Time Deposit, Foreign Currency Time Deposit and Internet Banking Deposit. Its current account includes BRI Rupiah Giro and BRI Foreign Currency Giro. Its corporate business banking services include business services, financial services, institutional services, treasury, custodian services, trustee services and cash management services. The Company operates approximately 18 regional offices, approximately 451 branches and over 582 sub-branches. Its networks serve in Borneo, Sulawesi and Maluku, Papua, Bali and Nusa Tenggara, Java, and Sumatra.
Investment Overview
Worsening asset quality. In 1Q24, BBRI recorded credit cost of 3.8%, marking an increase of 140bps q-o-q and y-o-y, accompanied by a rise in non-performing loans (NPL) to 3.11%, reflecting a 16bps q-o-q and 25bps y-o-y escalation. The main issue was in the micro segment, which has been the growth driver in recent years. In response, BBRI’s management has substantially raised its cost of credit guidance from the previous range of 2.2%-2.3% to just below 3.0%, anticipating a more adverse impact than initially projected for 2024. Furthermore, the management has raised their NPL guidance from 2.7%-2.9% to just below 3.0%.
NIM compression ahead due to tighter liquidity. Following the recent 25bps rate hike, BBRI anticipates heightened competition for deposits. Despite a flat q-o-q net interest margin (NIM) of 7.84% in 1Q24, the management has lowered their NIM guidance from the previous range of 7.9%-8.0% to 7.6%-8.0%. Given BBRI's pronounced sensitivity to liabilities, this rate hike is expected to exert a negative impact on the bank's cost of funds.
Enough buffer to maintain coverage. Despite a higher-than-usual credit cost and Rp10tn in write-offs in 1Q24, BBRI maintains their ample coverage to provide a buffer if its asset quality excessively worsens. As of 1Q24, the NPL and loan-at-risk (LAR) coverage for BBRI are 214% and 52%, respectively.
Downgrade BBRI to HOLD with TP of Rp5,200 (vs. Rp6,700 previously). Our TP is based on the Gordon Growth Model (13% cost of equity, 19% ROE (prev: 21%), growth 9%). We trim our earnings estimate by 11%-12% in 2024-2026F. Currently, BBRI is being traded at 2.3x P/B 2024F (-0.6STD), while our TP implies a 2.5x P/B 2024F.
Risks
Improvement in asset quality since BBRI has an elevated cost of credit and NPL compared to the other Big 4 Banks. Bank Indonesia (BI) cutting rates further, as BBRI is a bank that relies heavily on time deposits (TD), as its CASA ratio is the lowest among the Big 4 Banks.
Topic
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