BBRI IJ - MNC Sekuritas Equity Report 22 June 2021

PT Bank Rakyat Indonesia Tbk (BBRI IJ)

Establishing Ultra-Micro Ecosystem

Right Issue Agenda as Part of the Formation of Ultra-Micro Holding

• BBRI plans to issue a maximum of 28.68bn new shares (equal to 23.25% of BBRI’s current outstanding shares). The proceed mainly used to enable the transfer of Pegadaian and Permodalan Nasional Madani (PNM) to establish an ultra-micro holding company through non-cash transactions.
• Currently, the Indonesian government holds 56.75% ownership of BBRI’s total shares and will exercise all the rights by conducting an in-kind scheme.
• According to the independent appraisal, Pegadaian and PNM valued at IDR48.67tn/ IDR6.10tn respectively, implies 1.91x/1.05x PBV and translated to IDR54.77tn value acquisition combined (1.75x blended PBV).
• Thus, based on our calculation, BBRI will obtain total proceeds of IDR96.51tn, which implies est. right issue price at IDR3,365/share (~14% lower than the last closing price)

Leveraging New Source of Growth in Untapped Market.

• BBRI's initiative in synergizing with Pegadaian and PNM has the potential to generate significant revenue (+23%), bottom-line (+13%) and cost synergies from cross-selling opportunities and estimated efficiencies realized in the ultra-micro ecosystem. Total assets will also increase to IDR1,583.55tn (+12.22%). However, we see the potential for normalization in EPS (-8.32%) and ROE (-3.44%) would occur post-consolidation.
• Pegadaian, the largest pawnshop in Indonesia with a market share over 98%, proved its worthy track record by increasing its operating revenue by 38.79%/24.27% in FY19/ FY20. Pegadaian booked revenue and net income of IDR5.45tn/IDR705bn, respectively, while total assets stood at IDR72.19tn in Mar-2021.
• PNM, as a financing institution for the ultra-micro segment with 7.8mn ultra-micro customers, was able to increase loans by 42.38%/21.02% in FY19/FY20, and operating revenue grew by 17.62% in FY20. PNM managed to record revenue and net income of IDR1.80tn/IDR186bn while total assets stood at IDR35.10tn in Mar-2021.
• We believe that this synergy will certainly benefit BBRI in the long term, supported by a new source of growth in terms of lending, lower CoC, efficiency in opex, lower CoF and NPLs that tend to be manageable. Management targeting this synergy ecosystem will fully be completed at least in Sep-2021.
• The formation of the holding company should help BBRI, together with Pegadaian and PNM, accommodate around 30mn MSMEs that have not been served by financial institutions, with a target of 15mn ultra-micro entrepreneurs by FY24F.

Maintain BUY with lower TP: IDR4,800

We continue to maintain our recommendation BUY for BBRI with a lower TP: IDR4,800, which implied PBV FY21E/FY22F at 2.80x/2.62x, taking into account the potential short-term risk of dilution. However, we believe BBRI's strategy in expanding the ultra-micro segment together with Pegadaian and PNM, should be a long-term positive catalyst, given its competitive advantage and a proven track record in the MSME segment. Earnings could potentially recover by 50.28% YoY in a best-case scenario, given a low base effect with the deepest decline in earnings reaching -46% YoY in FY20. BBRI is currently traded at 2.54x PBV (close to +1STD 5-years mean).

BBRI