BMRI - 1Q23 result beats estimates

BMRI recorded a solid 1Q23 result, with earnings surpassing our and street forecasts at 102.9%/104.6%. Profitability metrics and asset quality remain undamaged and moving within the improvement trajectory. Our ‘23F PATMI for BMRI (+12.5% yoy) is rather conservative than consensus at 13.8% yoy. We also like BMRI for its well-managed asset quality which could provide room to further records lower CoC. Maintain BUY with DDM-based TP of IDR6,110 (2.3x ‘23F P/B) while it is trading at 1.9x ‘23F P/B, or below +1SD of 10-year historical mean of 2.5x. 1Q23 earnings arrives above ours and consensus BMRI booked solid 1Q23 earnings at IDR12.56 tn, or grew by 25.2% yoy and forming around 27.1% and 26.8% to our and consensus' expectations of IDR 46.3 tn and IDR46.85 tn. NPAT growth was mainly driven by 12.4% yoy and 18.3% yoy growths in net interest income and PPOP coupled with the helped from 7.7% yoy drop in provision expenses. On quarterly basis, NPAT grew 19.4% yoy and beating KBVs and street forecasts at 102.9%/104.6%, respectively. Despite net interest income came in lower by 3.8% qoq, overall earnings growth in 1Q23 was primarily underpinned by a sharp drop in operating expenses and provisions by 26.1% qoq and 13.7% qoq. Loan growth surpassing ours and BMRI ‘23F guidance Albeit flattish on qoq basis, BMRI saw healthy loan growth at 12.4% yoy to IDR1,205.46 tn and beating FY23 management's guidance of 10-12% yoy and our expectation of 10.3% yoy. Corporate segment loan (+5.2% yoy) remains as the backbone and contributes approximately 33% to total loan while commercial loan saw higher portion by 57bps to 16.9% and grew strongly at 17.7% yoy. Likewise for consumer loan segment which recorded 10.8% yoy growth. Both segments' solid growth were in line with BMRI ‘23F guidance which is expected to be supported by value-chain base and higher-yield segments in commercial, consumer, micro and SME (micro and SME segment loan growth in 1Q23 was at 12.7% yoy and 11.7% yoy). Improving key performance metrics across the boards BMRI saw better 1Q23 cost of credit (CoC) and non-performing loan (NPL), as a result of continuing improvement in asset quality. 1Q23 cost of credit was at 1.18%, 39bps better vs 1.57% in 1Q22 and arrived far below management’s guidance of 1.3-1.5% (KBVs ‘23F CoC: 1.34%). NPL also saw a better figures at 1.77% from 2.66% in 1Q22 or improved by 89bps yoy. The bank maintains its credit cost guidance in the range of 1.3-1.5%, which will be driven by ample coverage ratio and improvement asset quality as well as stable macro environment expectation. On profitability metrics, NIM expanded at 5.40% from 5.31% in 1Q22 while the management forecasts ‘23F NIM to hovers at 5.3-5.6%, driven by loan repricing, higher LDR, stable CASA ratio and manageable cost of fund. Expecting ‘23F earnings growth of 12.5% yoy Our expectation of BMRI’s solid performance in ‘23F is supported by its solid loan growth, stable NIM figures and ongoing manageable cost of credit. We forecast BMRI’s net interest income to grow 12.1% yoy in ‘23F supported by interest income growth of 10.7% yoy, as we expect higher yield on the back of repricing opportunity, stable CASA ratio and manageable cost of fund. We also expect BMRI earnings growth will be also underpinned by 9% yoy growth in non-interest income, coupled with the help from controllable operating expenses at 8% yoy which could bring PPOP to grow by 13.4%yoy. Our ‘23F PATMI for BMRI is around 1.33pts more conservative than consensus at 13.8% yoy. Maintain BUY with Target Price of IDR6,110 Our intrinsic value is based on Gordon Growth Model with fair ‘23F P/B of 2.3x. BMRI is currently trading at 1.9x ‘23F P/B, or below its +1SD 10-year historical mean of 2.5x. Risks to our call are: a) lower-than-expected loan growth, NIM and loan yield, b) higher than expected CoC and c) higher inflation, slowing economic activity and d) deteriorating asset quality.