Earnings Jump Beating Consensus, Upgrading Our TP
2Q22 earning beat consensus estimate
BMRI recorded a net profit of IDR10.2tn (+1.5% QoQ/+54.6% YoY) in 1Q22. Interest income grew +4.4% QoQ/+12.8% YoY in 2Q22 on the back of improving loan yield particularly for FX loan. Note that FX loan yield increased since 1Q22 as Fed raised FFR, while IDR loan remained flattish so far in-line with BI keeping interest rate unchanged. In addition, CoF continued to decline as CASA reached 70.8% in 2Q22. The increase in blended loan yield coupled with CoF decline have supported bank’s NIM improvement (+10 bps QoQ/+30 bps YoY). On the other hand, provisioning expense dropped significantly in 2Q22 (-8.7% QoQ/-34.7% YoY) thanks to improving asset quality and front loading strategy. Cumulatively, BMRI posted a net profit of IDR20.2tn (+61.7% YoY) in 1H22 beating consensus estimate (>55% run rate for FY22E).
Lending & funding balance booked a double digit growth
BMRI’s lending balance expanded by +6.1% QoQ/+12.2% YoY as of Jun-22. Such figure was above industry loan growth +10.7% YoY. We see BMRI’s loan portfolio grew across the board with an annual rate of >10% except for consumers. Corporate loan portfolio that accounted ~36% from total loan increased +10.6% YoY. This healthy loan growth was also in-line with improving domestic economy. Solid manufacturing activity (PMI>50) as well as higher mobility have helped loan demand to pick up. Moreover, banking liquidity remain sufficient to support loan growth as LDR was still below its 10-year historical average of 87-89%. On a recent earning calls, management revised up loan growth to be at >11% (vs 8% previously) which we see is achievable. Despite having adequate liquidity amidst banking reserves requirement hike, we expect BMRI could expand its lending balance booking +12% YoY growth for FY22E.
On the funding side, customer deposit grew +3.9% QoQ/+12.8% YoY and this was led by CASA growth (+4.5% QoQ/+16.5% YoY). Livin’ and Kopra, BMRI’s digital apps, contributed significantly to the growth of CASA and the drop in cost of CASA deposits. Note that Livin’ app has helped BMRI’s to offset the pressure on fees from BI-Fast implementation as it generated higher volume of transfer. Worth noting that transfer volume has increased from 80mn in 1Q20 to 233mn in 2Q22 (+12.6% CAGR).
Improving asset quality and sound risk management strategy
Similar to other banks, BMRI also reported lower NPL & LaR ratio. As of Jun-22, BMRI’s NPL & LaR stood at 2.4% & 14.6% respectively. Albeit still higher than normal level of <10%, BMRI’s LaR has declined by -680 bps from the peak in Sep-20. On the other hand, BMRI also maintained sufficient provisioning with NPL & LaR coverage at 253% & 42% respectively as of Jun-22. Furthermore, BMRI’s high exposure on corporate segment, despite loan yield to remain flattish, yet lower CoC could support higher risk adjusted loan yield.
BUY with upgraded TP at IDR9,300/share
We recommend BUY for BMRI with TP at IDR9,300/share implying +16.6% potential upside & 1.8/1.7x FY22E/FY23E P/B. Our assumptions include : 1) +12% YoY loan growth; 2) NIM at 5.2%; 3) CoC at 1.5%. Key downsides to our call : 1) unfavorable macro condition that could deteriorate asset quality 2) FX volatility as well as 3) risk from capital outflows. The upside catalyst for BMRI is higher Livin’ adoption by customers securing low cost funding amidst interest rate hikes as well as promoting higher transaction volume to support fee income.
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