BBRI - Value Beyond Profit

Albeit normalized, BBRI robust FY22 result should continue this year. The bank will continue to enjoy the improvement in micro segment outlook this year, on top of its prominent positioning to serve the huge untapped market. A good combination of its robust capital management and synergy with Pegadaian and PNM should be translated as solid foundation for ample room of growth going forward. This also means a persistence of scaled-up earnings and solid ROE which interpret into an attractive dividend yield. Maintain BUY, with target price of IDR5,550, pegged at 2.6x ‘23F P/B vs. currently 2.2x ‘23F P/B, or at its 10-year hist. mean. 2023 earnings growth should remain solid Following its 9M22 earnings growth at 106.1% yoy, BBRI reported another strong quarter and made up FY22 earnings reached IDR51.4 tn, surged by 67.1% yoy. Aside from 9.2% yoy and 13.5% yoy growth in net interest income and PPOP, a sharp 31.3% drop in provisions also boost FY22 earnings to beats ours and street's ‘22F figures by 10.3/4.4%. In ‘23F we expect earnings growth to normalized, yet remain solid at 16.1% yoy and above 3 years CAGR growth pre pandemic of 8.9%. Our ’23F net profit forecast of IDR54.1 tn were 3.1% below street forecast at IDR55.8 tn. We might see another double-digit loan growth FY22 loan book grew at healthy level (9.2% yoy, 9.4% qoq) and arrived within management guidance of 9%-11% and largely in line with our expectation of 9.25% yoy. Micro segment saw a continuing improvement with 13.9% yoy growth and accounted for 48.4% of total loans or around 200bp higher compared to last year. Consumer segment also saw double digit growth at 11.4% yoy, contributing around 14.7% to BBRI’s consolidated loan figures and expands by 30 bp. This year, the bank is guiding loan growth within range of 10%-12% yoy, or similar to industry growth projected by Bank Indonesia. Robust key performance across the boards FY22 NIM stood at 7.85% or 15bp higher vs last year and arrived within guidance of 7.7%-7.9%. As a result of continuing improvement in asset quality, CoC stood at 2.55% and 123bp better from FY21. NPL also saw a better figures by 32bp at 2.67% with sturdy loan coverage at 305.7%, or a massive increase from 281.16% in FY21. We also like BBRI's well managed CAR which continue to sit at solid level of 25.5% with Tier-1 CAR 24.5%. (vs. Basel 3 regulatory requirement of only 17.5%). With such gap, we believe capital adequacy is surely not an issue for BBRI and thus provide the bank with plenty of room to focus to play the game of growth. Proven consistent asset quality improvement On risk metrics, BBRI has successfully walk through and enjoy the LAR recovery momentum which drop almost half to 17.11% compared to pandemic era at 28.26% (FY20) and 19.36% in previous quarter. LAR coverage (inc. Covid-19) mounted to 48.0% or 220bp better vs 25.8% in FY20 and 44.9% in 9M22. Total restructured loan consistently on the downhill track to 14.4% vs 26.2% in FY20 and 16.2% in 9M22. With such improvement we do not see any doubt for the bank to effortlessly phase out the relaxation policy. Enough confidence on ‘23F guidance The bank is guiding NIM to hover within the range of 7.7%-7.9% (FY22: 7.85%) amid transmission policy rate hike to loan repricing and CoF adjustment. BBRI also attempt to compensate growth with manageable CIR (bank only) and thus eyeing the ratio at 40%-41.5%. CoC is expected to further improve ranging between 2.2%-2.4% (FY22 2.55%) and we believe the figure is achievable given its solid asset quality improvement. Maintain BUY with target price of IDR5,550 Our target price is derived from GGM with fair P/B ‘23F of 2.6x, while its currently attractively trading at its 10-year hist. mean of 2.2x ‘23F P/B. Risks to our call: a) lower-than-expected loan growth, NIM, loan yield, b) higher than expected CoC, deteriorating AQ.