PT Bank Rakyat Indonesia (Persero) Tbk (BBRI)
Banking Sector
Road to Micro-Business Sustainable Growth
No Surprises from the FY19 Result
BBRI booked net profit of IDR34.37 trillion or grew by 6.25% YoY, slightly lower than our estimate, representing 94.19% of full year MNCS estimate, whereas net interest income remained flat at 5.20% YoY in FY19. Loan growth slightly decrease to 7.00% in FY19 (vs 14.05% in FY18) because of lower consumer loan and small commercial growth at 7.42%/8.58% YoY while the micro segment declined at 12.18% YoY level (vs 14.53% YoY in FY18). Therefore, NIM was decreased to 6.85% in FY19 (vs 7.31% in FY18) along with the industry condition, hence the management revised down the FY20E target of NIM to around 7%, which our forecast in FY20E at 6.89%.
Asset Quality Remain Stable
Gross NPL increased to 2.62% in FY19 (+46 bps) from 2.16% in FY18 with the net NPL at 0.92% due to the strategy to downgrade some stress loan from a micro, consumer and corporate segment (KRAS, Duniatex) which have been fully provisioned in FY19. Thus, coverage ratio stood at 167% in FY19 (vs 198% in FY18). Management targets the NPL around 2.5% with coverage ratio above 170% in FY20E. Moreover, total asset grew by 9.24% YoY to IDR1,416.76 trillion in FY19, supported by Loan growth of 7.00% YoY as well as Third Party Fund growth of 5.52% YoY. According to the management, IFRS 9 update one-time adjustment in provision amounted to IDR13 trilion-IDR15 trillion.
Strengthening Loan Quality to Maintain Market Leadership in Micro Segment
Management estimates a loan growth of 10%-12% in FY20E which is in line with BI and OJK forecasts, while focusing on micro segment. Hence, we forecast loan growth of ~12% in FY20E/FY21F. BBRI also plans to increase the micro segment’s contribution to 40% in FY22F while the corporate segment portion is to be reduced by 20% maximum
Hoping for BBRI New Management and Higher Dividend Yield
Key shareholders of BBRI have expressed their high hopes on newly appointed Kartika Wiroatmodjo as new President Commissioner of the company, saying the new commissioners will guide the company to a higher growth level. Moreover, BBRI plans to distributes Cash Dividend for the financial year of 2019 by IDR20,62 trillion (~64% DPR in FY19) or at least IDR168 per share which will be paid in March 2020. At the current price, BBRI offers higher dividend yield of 3.4% in FY19.
Recommendation: Maintain BUY at Target Price IDR5,000
We maintain our recommend BUY for BBRI at a target price of IDR5,000 with implied PBV FY20E/FY21F at 2.86x/2.56xand is traded at +0.5STD of average 3 years PBV band. We believe the company strategy to focus on asset quality and manageable liquidity will drive BBRI’s performance, with several downside risks: IFRS 9 implementation, macro economy and NIM pressure.
