Bank Rakyat Indonesia (BBRI IJ) Positive 1Q24 net profit growth despite higher provisions, expected improvement ahead (NOT RATED)

Stock Code	Last Price	Change	Change %
DSSA	128.000	3.000	2,40%
ITMG	25.350	550	2,22%
HILL	3.050	430	16,41%
SMMA	14.600	325	2,28%
BRAM	5.875	275	4,91%
TPIA	7.975	275	3,57%
MKPI	27.750	150	0,54%
INKP	9.525	100	1,06%

Bank Rakyat Indonesia (BBRI IJ)

Positive 1Q24 net profit growth despite higher provisions, expected improvement ahead

Despite the 91% increase in provisions, BBRI booked 1Q24 net profit of Rp15.9tr in 1Q24 (+2% yoy) with strong PPOP growth of +22% yoy.
The mgmt raised CoC/NPL guidance to max 3.0% (from 2.2-2.3%) and to max 3.0% (from 2.7-2.9%), but with an expected improvement in 2H24.
Since Mar24, BBRI’s valuation has de-rated to 2.4x PBV (+0.5SD vs 5-year mean) as the shares fell 15%, underperforming the sector by 11%.

Strong PPOP from higher recoveries and contained opex

BBRI booked net profit of 15.9tr (+2% yoy, -1% qoq) with a strong PPOP of Rp30.7tr (+22% yoy, +12% qoq) but offset by higher provisions of Rp10.7tr (+91% yoy, +60% qoq). BBRI’s 1Q24 NP is 24% of the FY24F consensus, inline. The strong PPOP was supported by other income amounting to Rp13.2tr (+26% yoy) from higher recoveries (+48% yoy), albeit still 26% lower from a high base in 4Q23, and lower opex, leading to a CIR of 37.4% (-441bps yoy).

Frontloading the small and micro segments led to a higher CoC

The bank’s NPLs rose to 3.11% in 1Q24 from 2.95% in 4Q23, while the CoC increased to 3.3% from 2.1%. This was primarily due to the bank frontloading provisions for the micro and small segments. However, it is important to note that the rising NPLs was slightly offset by improving NPLs in the corporate segment. The management revised the NPLs guidance from 2.7-2.9% to <3% and CoC guidance from 2.2-2.3% to 3.0% max in FY24F, indicating their proactive approach to these challenges. This also implies expected normalization of CoC back to the FY23 level of 2.4% in 2H24, with the possibility of costs starting to trend down in 2Q24 judging from the Mar24 bank-only CoC (down 429bps from its peak in Feb24).

Focus on asset quality improvement, slightly lower FY24F loans guidance

Despite the 11% yoy loans growth in 1Q24, the management slightly revised the target from 11-12% to 10-12% as the bank will focus on improving its asset quality, especially in the micro and small segments. The consumer and corporate segments supported the 1Q24 loans growth (+12% and +15% yoy respectively) and will continue to drive the FY24F loans growth.

Valuation derating is pricing in the asset quality concern

Despite mounting concerns on deteriorating asset quality which led to a higher CoC, the bank delivered good performance with 2.5% yoy NP growth, supported by higher other operating income and loan yields. Since Mar24, BBRI`s valuation has de-rated to 2.4x PBV (+0.5SD vs. 5-year mean) with an implied CoE of 9.9% (-1SD of its 5-yr avg.) as the share price underperformed the sector by 11% partly due to the rising concerns on asset quality.

… Read More 20240426 BBRI