Bank Rakyat Indonesia (BBRI IJ) 4M24 earnings aided by other operating income, improving CoC should ease asset quality concerns (NOT RATED)

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Bank Rakyat Indonesia (BBRI IJ)

4M24 earnings aided by other operating income, improving CoC should ease asset quality concerns

BBRI reported 4M24 NP of Rp17.8tr (+4% yoy) with PPOP growth of 15% supported by higher other op. income and 12% loans growth.
Off 1Q24’s high base CoC of 3.7% (Feb24’s CoC was 6.7%), BBRI’s CoC improved to 3.3%. This should ease asset quality concerns.
The bank’s share price has declined by 28% since Mar24, bringing its PBV to slightly below mean and implied CoE to 11.1% (close to -2SD).

NP growth supported by PPOP partly offset by higher provisions

BBRI reported net profit of Rp4.0tr in Apr24 (-30% mom, +23% yoy), bringing its 4M24 net profit to Rp17.8tr (+4% yoy). The 4M24 net profit is 28% of the consensus FY24F, or below last year’s achievement of 32%. NIM declined to 6.3% in Apr24 (-80bps mom, -86bps yoy) despite the flat mom CoF at 3.7% (-87bps yoy). In 4M24, the 97bps yoy increase in the CoF offset the 50bps increase in the EA yield, resulting in a lower NIM of 6.8% (-33bps yoy). Despite the lower NIM, NII was still 6% higher thanks to the 12% yoy loans growth.

Robust PPOP growth supported by loans growth and other income

4M24 PPOP improved 15% yoy supported by the 6% growth in NII and 27% increase in other operating income which, we believe, was driven by higher recoveries, inline with the bank’s expectation to increase its write-offs and recoveries. Combined with the contained opex, which only rose by 3% yoy in 4M24, the CIR improved to 30.7% (-213bps yoy). Nonetheless, 4M24 net profit grew at a slower pace of 4% yoy due to the higher provisions (+36% yoy).

Improving CoC off a 1Q24 high base

Off Mar24’s low base (CoC at 2.4%), BBRI`s provisions rose 37% mom but are still 15% lower yoy. Apr24’s CoC improved to 3.3% from 3.7% in 3M24 (Feb24 CoC was 6.7%), resulting in 4M24 CoC of 3.6%. Albeit improving, the CoC is still higher than the bank`s FY24F CoC target of 3.0%. Nonetheless, the improving CoC trend should ease concerns on continuous asset quality deterioration.

Valuation derating has priced in the asset quality concerns

Despite the rising CoC caused by deteriorating asset quality, BBRI still delivered decent 4% yoy NP growth, supported by higher other operating income and higher loan yields. Since Mar24, BBRI`s share price has declined by 28% and the valuation has de-rated to 2.0x PBV, slightly below its 5-year average of 2.1x. The implied CoE of 11.1% is approaching its -2SD of the 5-year avg. of 8.6%.

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