BBRI - Expecting Stronger Impact From The Synergy

BBRI solid earnings growth is expected to continue in ‘23F, despite at a slower pace amid high-base effect in ‘22F. Loan book growth is expected to be slower as well, yet the impact of rising policy rate transmission to earnings asset yield could underpin ‘23F NIM to arrive at a similar level with ‘22F. We continue to like BBRI as the synergy with Pegadaian and PNM will provide ample room for growth going forward. With scaled-up earnings likely to continue, solid ROE should persist and eventually translate into an attractive dividend yield. Maintain BUY, with a higher target price of IDR5,550, pegged at 2.6x ‘23F P/B vs. currently 2.2x ‘23F P/B, or at its 10-year historical mean. 2023 earnings growth remains solid Strong 9M22 earnings is likely to continue in 4Q22 thus in-line to achieve our ‘22F net profit growth forecast of 50.0% yoy or IDR46.03 tn (consensus’ at 55.1% yoy or IDR48.04 tn) underpin by 17.1% yoy and 21.4% yoy growth in net interest income and PPoP. In 2023, earnings growth is expected to normalize post strong y-o-y growth in ‘22F as a result of ’21 low base effect and economic reopening momentum. In ’23F, net profit growth is forecasted to moderate at 16.1% yoy (IDR54.1 tn) but still much higher than the 5-yrs pre-pandemic mean of only 8%. We believe increasing earnings asset yield will help ‘23F interest income to grow by 10.7% yoy (vs. ‘22F of 10.9% yoy) while 10.5% PPOP growth and slightly lower provision expense amid stable asset quality will further enhanced bottom line growth in ‘23F. Acceptable slower loan growth As the reopening economy post Covid-19 take place, banking sector has continuously showed solid improving performance including BBRI. Nevertheless, we think such strong growth would not be the case for 2023 despite our expectation on macro stability. We also anticipating the potential impact from global uncertainty with spiking inflation and rising policy rates that still intact in short term. Having said that, we forecast BBRI’s loan growth could softened to 7.96% yoy or 129bps vs. 2022F figure at 9.25% yoy (9M22 7.92% yoy and bank only at 8.2% yoy). Micro will continue to be the growth driver and taking the largest portion at 46.3% with small commercial and consumers at 20.6% and 15.6%, respectively. 2023F NIM will remain solid with manageable asset quality BBRI NIM recovery momentum is likely to continue despite the macro headwind and higher interest rate environment. Post reporting higher 9M22 NIM at 8.2% (vs. 9M21: 7.4%), we believe it will remain solid in 2022F at 8.7%. In 2023, we might see another inched improvement to 8.9% (20bp higher vs 2022F) on the back of higher loan yield and well managed CoF which could bring net interest income growth to 7.7% yoy to IDR143.9 tn. On risk metrics, we view asset quality will continue to be manageable. NPL could arrive at 2.89% in 2023F, or slightly improve than 2022F NPL of 2.94%. As of 9M22, BBRI’s NPL came in at 3.09% or 18bps better from 3.27% in 9M21. Stronger RoE means ample room for higher dividend We continue to like BBRI, especially on its latest synergy with Pegadaian and PNM which will strengthen its position to penetrate deeper to SME huge potential market and creates ample room for growth. Aside from the collaboration, we also think that with strong CAR (improved to 26.14% in 9M22 from 25.97% in 9M21), BBRI could record higher ROE going forward and this also means offering a higher dividend yield. Maintain BUY with higher target price of IDR5,550 (IDR5,400 previously) Our target price is based on Gordon Growth Model with fair P/B of 2.6x (normalized ROE: 17.6%, cost of equity: 10.6%, long-term growth: 6.1%). BBRI is currently trading at 2.2x 2023F P/B, or at 10-year historical mean. Risks to our call: a) lower-than-expected loan growth, NIM, loan yield, b) higher than expected CoC, slowing economic activity, deteriorating AQ.