BRIS - Tapping The Massive Untapped

Bank Syariah Indonesia’s (BRIS IJ) goals to become Indonesia’s largest sharia bank and join the global sharia playfield have been achieved post-merger. Value creation remains proven up until 3M23 and is likely to sustain going forward. Main challenges are on optimizing huge market potential that leads to faster financing growth as well as managing operational efficiency and asset quality, which in turn will boost earnings growth momentum. Initiate coverage with BUY and target price of IDR1,950/share. In well-position to become global players Global Islamic finance growth is likely to sustain and is poised to registered noteworthy CAGR growth. Many studies have been made and Indonesia is included in one of the countries ranked globally. As one of global largest Muslim population with around 87.2% of total population and approximately 12.7% of Muslim to world total population, Indonesia is well positioned to become one of the global largest Islamic banking players. Strengthening the synergy with the ecosystem is needed… Literacy seems become one of the key success issues which could increase awareness, prompted the use of sharia banking products and at the same time will resulting to a better penetration rate. Synergy should become the industry’s soul of growth as the sharia banking sector is linearly tied with Islamic economic development. We like government’s continuing support and thumbs up the strategy roadmap for Islamic banking development which one of the visions is to encourage synergy within Islamic economic ecosystem. ..to maintain sustainable growth Promising economic potential, unique demographic structure, portion of Muslim population and huge untapped of promising market are several factors that make the industry pie still poised to grow. Despite World Bank data continue to validate Indonesia’s low unbanked population, various improvement has been achieved. Total assets of Islamic commercial banks and Islamic business unit recorded a 5yr CAGR growth of 16.7% with a portion to total commercial banking assets around 7.2% or approximately 120bps higher. Fundamental wise, TPF and financing channeled as well as various key performance metrics also showed a solid figure, with better profitability and manageable asset quality. Solid start to enter global journey As the solid growth likely to continue and opportunity to grow is widely open, Indonesia is definitely demanding a prominent sharia bank and that’s the reason of BRIS birth, in our view. Positioned at the forefront of domestic landscape competition, undoubtedly BRIS will become as the main beneficiaries of the potential market massive growth. Included in several study as Islamic bank that joined the global rank, we believe BRIS solid foundation post-merger should become as a god start to enter the global journey. Initiate BUY with TP of IDR1,950/share Consumers segment to continue underpin total financing growth, while sustained low TD portion and growing Wadia fund will overall make CoF to remain well-managed. Likewise for asset quality which remains on the improvement track. In all, our ‘23F PATMI for BRIS of IDR5.11 tn is within management guidance of IDR5.0-IDR5.5tn (cons. ‘23F IDR5.34tn). We initiate coverage on BRIS with a BUY stance and target price of IDR1,950/share. Our intrinsic value for BRIS is based on blended valuation of GGM with fair ‘23F PB of 2.6x and relative valuation of 2.0x PB. BRIS is currently trading at 2.1x ‘23F P/B, or slightly below its average 2-year historical mean of 2.5x. Risks to our call are: 1) slower than expected optimizing targeted payroll financing, 2) lower-than-expected loan growth, NI and financing yield ,3) higher than anticipated exposures to TD, 4) higher than expected credit cost and 5) weakening shariah banking products penetration and further asset quality deterioration in corporate segment.