BMRI - Cautiously Optimistic

Post the recovery momentum, BMRI is expected to record slower loan growth next year as demand could be hurt by the uncertain macroeconomic background. However, the adjustment on earnings asset yield should provide cushion for BMRI’s interest income. We still like BMRI for its solid coverage and LAR improvement as well as expecting NIM could still arrive within the same 2022F figure while asset quality remains well managed providing room for lower CoC next year. Maintain BUY, with a target price of IDR11,250 (2.3x 2022F P/B) while it is currently trading at 2.1x 2022F P/B, or at its +1SD10-year historical mean. NPAT could remain to grow next year After reporting strong earnings in 9M22 (+59.4% yoy) and beats KBVS’s and market consensus (~81%), BMRI’s 2022F earnings growth is expected to remain solid at 41% yoy. (Cons: 39% yoy). Next year, earnings growth may slow down to 12.2% yoy, amounting IDR44.3 tn (cons. +12.6% yoy) due to the high-base effect amid recovery momentum 2022 and potential softer loan demand amidst the economic uncertainty and inflation pressure. BMRI’s 2023F earnings forecast will be underpinned by interest income growth of 8.7% yoy at IDR118.7 tn (cons. 9.6% yoy) and 13.4% yoy PPOP growth. Loan growth to sustain, despite at a slower pace BMRI recorded strong loan growth of 14.3% yoy in 9M22, surpassing both banking industry and BMRI’s target for this year (>11% yoy). Despite the bank has not officially released its FY23F guidance, we view loan growth could be softer in 2023 at 9.0% yoy on the back of economic activity uncertainty expectation (KBVS FY2022F BMRI loan growth at 10.2%yoy). The loan growth will be dragged down mainly from Micro and SME and corporate loan which we expect grew at 12%yoy or 50bp lower to compared to our forecast in 2022F at 12.5% yoy. Meanwhile consumer loan should grow at the same rate with last year at 5.0%, as the industry tend to be resilient and defensive. Expecting 2023F NIM to be well managed BMRI continue to report better asset quality, with 9M22 NPL improving to 2.24% from 2.96% (9M21). NPL coverage strengthened to 268% in the same period, while CoC was in a better position at 1.46% vs 1.61% in 9M21. NIM continue to expand at 5.42% in 9M22 (above 2022F guidance and KBVS 2022F at 5.46%), driven by higher loan yield and well managed CoF. Next year, we view NIM expansion could be limited, however, it could still arrive at around the 2022F rate, driven by solid net interest income and cost of fund adjustment that could be much faster than loan yield. As of 3Q22, BMRI’s (bank only) CoF has started to increase and stood at 1.22% compared to 1.19% in the previous quarter, while yield of loan has spiked to 7.01% vs 6.84% (2Q22). Expecting 2023F asset quality to remain solid We are adjusting 2023F NIM assumption by 50bp to 5.5% from 6.0% previously. We also revised down loan growth assumption by 2.2% to bp 9.0% yoy from 11.2% previously, or equal to IDR1,260.93 tn. Despite we adjusting NIM and loan growth to accommodate the economic uncertainty next year, we still believe BMRI’s asset quality to be well managed. Thus, we expect NPL coverage to remain solid and BMRI could see lower CoC next year at 1.7% or 10bp better vs our 2022F of 1.8% (BMRI 2022F CoC target within the range of 1.4%-1.7%). Maintain BUY with higher target price of IDR11,250 (IDR10,750 previously) Our target price is based on Gordon Growth Model with fair P/B of 2.3x (normalized ROE: 17.9%, cost of equity: 10.8%, long-term growth: 5.3%). BMRI is currently trading at 2.1x 2022F P/B, or at its +1SD 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.