Bank Mandiri (BMRI IJ)

Raising our FY24-25F forecast and TP post 4Q23 earnings beat

• BMRI reported FY23 net profit of Rp55.1tr (+34%yoy) beating our forecast and the cons. on 4Q23 higher recoveries and lower provisions.
• We expect the FY24F earnings growth to normalize due to our expectation of softer NIM and CoC normalization.
• Maintain BUY with a higher TP of Rp7,600 as we raise our FY24F net profit estimate by 5%, resulting in a higher ROE of 21.2%.

Robust 4Q23 earnings supported by higher recoveries and lower provisions

BMRI reported 4Q23 net profit of Rp16.0tr (+27% qoq, +77% yoy) backed by high cash recoveries of Rp4.5tr (+188% qoq, +166% yoy) and lower provisions of Rp1.0tr (-34% qoq, -77% yoy), bringing its FY23 CoC down to 0.85%, better than our expectation. The bank expects the high recoveries income to continue as it expects mid-to-high single digit growth in non-interest income in FY24. The lower provisions, however, are a one-off, driven by the overprovisioning for covid restructured loans since FY21 and provision release from the recalibration of the credit provision model. Hence, the bank indicates that FY24F’s CoC will stand at 1.0-1.2%, higher than FY23`s 0.85%.

4Q23 lower NIM on a higher CoF

BMRI’s annualized NIM declined to 5.1% in 4Q23 (3Q23: 5.5%, 4Q22: 5.6%), signaling a continuous compression in margins as the annualized CoF rose to 3.2% from 1.9% in 4Q22 and 3.0% in 3Q23, offsetting the higher earnings yield. The bank provides guidance for a stable to slightly lower NIM of 5.3-5.5% in FY24F (vs. 5.48% in FY23) mainly to account for rising CoF risk. 

We raise our FY24-25F estimate on higher recoveries and lower provisions

We raise our FY24F earnings estimate by 5% to Rp57.7tr on the back of higher non-operating income (+11%) and slightly lower provisions (-5%) to offset the slightly lower NIM assumption, which results in a higher ROE of 21.2% (from 20.8% previously). We now expect BMRI’s earnings growth to normalize at 5% in FY24F, post its strong FY23 NP growth of 34%. Our NP growth estimate for BRMI is similar to BBNI’s but lower than BBCA`s 9%.

Maintain BUY rating with a higher TP of Rp7,600

BMRI trades at 2.2x, +2 SD PBV of its 5-years average. We maintain our Buy rating with a higher TP of Rp7,600 (from Rp7,300 prev.), reflecting fair value PBV of 2.5x on a higher ROE expectation, as we maintain our CoE assumption at 10.3%. The downside risk to our NP forecast is the normalization in recovery income while there is an upside if the bank can keep its CoF lower than our expectation.

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