Oct 26, 2016 15:19:42

Bank Rakyat Indonesia ($BBRI), Micro Lending To Support Further Growth Ahead

We expect decent earnings growth for BBRI, supported by higher loans growth and manageable credit costs. Loans growth should be underpinned by the Government’s target on its KUR programme, which should boost BBRI’s commercial micro lending going forward –where borrowers need to obtain loans of more than IDR25m. The additional micro borrowers would also support BBRI’s fee-income base. We are already projecting lower loan yields due to higher KUR portion in its micro lending book. Maintain BUY with unchanged GGM-based TP of IDR14,500 (19% upside).

¨       Earnings growth outlook. We are projecting earnings growth of 7.8% in 2017 for Bank Rakyat Indonesia (BBRI),with relatively stable credit cost of 228bps, which would maintain its loan loss coverage (LLC) ratio at the minimum level of 150%. Moreover, BBRI is expected to continue optimising its loan-to-funding ratio (LFR) in order to manage its superior net interest margin (NIM) at 8%.BBRI’s 9M16 results were inline with our expectations.

¨       Maintain focus on micro lending. BBRI’s loan book would still be dominated by micro lending, particularly with the Government’s Kredit Usaha Rakyat (KUR) micro lending program. Under KUR’s current scheme, the Government provides a 10% subsidy while borrowers incura lending rate of only 9%. For next year, the Government has already proposed lower lending rates of 7% to be paid by KUR borrowers, and are still in discussions with participating banks on the subsidy. We have already assumed lower loan yields of 13.2% in FY17 due to the expected higher portion of KUR (27%)in micro lending (Sep: 22.6%).

¨       3Q16 earnings – inline
¨       Maintain BUY. We maintain our BUY call on BBRI, supported by its strong loans growth from micro lending, superior NIMs, and potentially higher fee-income from c.50m customer accounts. Our GGM-based TP of IDR14,500 implies FY17F P/BV of 2.15x (-0.75SD of its historical mean), and P/E of 13x.