BMRI - Expecting 2H23 results to continue solid

BMRI’s strong 1H23 earnings delivery (+25% yoy) which beats ours/consensus has made our ‘23F estimate looks conservative and underpinned its premium valuation. We expect a soft qoq growth in TPF and SA will gradually improve in the remaining quarters of 2023. On a cumulative basis, NIM is likely to arrive within guidance, while another CoC improvement should overall underpinned ‘23F earnings momentum. Maintain BUY with higher TP of IDR6,300 (prev: IDR6,110), pegged at 2.4x/2.3x ‘23F/’24F P/B, while its currently trades 2.1x ‘23F P/B, or slightly below +1SD 10yr hist mean of 2.4x. 1H23 results came above ours and street forecasts BMRI recorded strong 1H23 results, with earnings arriving above both ours and consensus expectation at 54%/53%. PATMI surged 24.9% yoy to IDR25.2 tn driven by solid growth in net interest income (+13.1% yoy) and PPOP (+18.9% yoy) as well as with the absence of a sharp drop in provision expenses which only noted 18bps lower to IDR7.64 tn. Solid loan and CASA growth Loan growth was arriving within guidance (10-12% yoy; KBVS: 10.34% yoy) at 11.8% yoy and 5.53% qoq to IDR1,272.1 tn, driven by robust growth from several segments such as consumers (+11.7% yoy) and SME (+11.7% yoy) as well as micro (+11.3% yoy) with the highest growth recorded from commercial (+19.0% yoy) and its subsidiaries (+16.3% yoy). On funding side, TPF grew at 8.47% yoy to IDR1,430.1 tn, thanks to strong CA growth (21.2% yoy) and a drop in TD (-1.43% yoy), which bringing CASA growth at 12.6% yoy and continue plays important role in financing loan demand. Key metrics improvement remains intact Key metrics continue to moves within its improvement track. NIM was 19bps higher to 5.56% in 1H23 and only inched differences with the upper guidance of 5.6%, while credit cost advances to 1.19% on continuing asset quality enhancement and surpassing target of 1.3-1.5% (KBVS: 1.34%). As such, management raising its guidance by 20bps to 1.1-1.3%. Loan yield reached 7.93% vs 6.84% in 2Q23 and 7.66% in 1Q23, benefiting from USD corporate loan new booking, while CoF downed to 1.56% vs 1.69% in 1Q23 mainly driven by lower CA rate from 2.15% to 1.94% in 2Q23. LAR has touched its pre-pandemic level LAR in Jun ‘23 was at 10.3% (Mar ‘23: 11.3%, Jun ‘22: 14.6%) has reached to the pre-pandemic level at around 10.6%, with Cat. 1 restru at 4.19% vs 5.42% in Mar ‘23. The continuing asset quality improvement also brought NPL stood at 1.64% vs 2.42% in Jun ‘22 and 1.77% in Mar ‘23. The bank also saw stronger coverage ratio by 51pts to 304% vs 253% in the same period. On the watchlist SoE construction debtors, BMRI has formed a coverage ratio of 60% (WSKT) and 30% (WIKA). Expecting 2023 result to continue beat ours and cons. forecast Using the 1Q23, 2Q23 results with ours and street earnings expectation in 3Q23F, 4Q23F, ‘23F earnings could arrives at around 150bps and 30bps higher, ceteris paribus. What’s more, BMRI likely to reached ours and cons. ‘23F earnings effortlessly, as BMRI only need to booked the remaining 46%/47% earnings in 2H23 vs 53% of 5yr hist. avg. (excl. Covid year). Other things being equal, our sensitivity analysis suggest that for every 10bps declines in CoC, earnings will increase by around 2.03% from our base numbers, vice versa. Assuming the bank will record CoC at lower new guidance of 1.1%, 2023 PATMI will equal to around 4.8% higher than our ‘23F of IDR46.3tn. Maintain BUY with higher target price of IDR6,300 Post better than expected 1H23 results and to justify BMRI’s revised up guidance, we revisit our model and made some adjustment. Our new ‘23F earnings for BMRI is now 200bps higher mainly on better CoC expectation. We also revised up our RRR from 79% to 82%. Pegged at 2.4x/2.3x ‘23F/’24F P/B, our new TP for BMRI of IDR6,300 (previously IDR6,110) is slightly below +1SD 10yr hist. mean of 2.4x, while currently is trading at 2.1x. Risks to our call are: a) slower-than-expected loan growth, b) lower-thanexpected NIM and loan yield, c) higher than expected cost of funds and cost of credit, d) higher inflation, slowing economic activity, worsening uncertainty and e) deteriorating asset quality.