Apr 25, 2017 11:23:01

We expect BRI ($BBRI) to maintain its focus on the micro and SME segments going forward through the KUR and Kupedes programmes. As such, we project a 15.4% YoY growth for the micro lending segment. Fee income would also be an additional income source, particularly from loan administration fees. Credit cost would remain manageable at 255bps this year on the back of substantial exposure to micro lending. Maintain BUY and our GGM-derived TP of IDR14,500 (13% upside).

  • Fee income as another source of income. Bank Rakyat Indonesia’s ($BBRI) strategy to push non-interest income as an additional growth engine should materialise starting this year. We expect loan administration fees to have a higher contribution at 13.7% of total fee income in FY17 (FY16: 12.7%). All in, we assume a 22% growth in fee income to IDR11.3trn.
  • Asset quality remains under control. BRI’s 1Q17 credit cost of 314bps was part of the bank’s front-loading strategy with regards to its asset quality. Looking ahead, we assume asset quality would remain manageable with a stable credit cost of 255bps and 2.3% gross NPL ratio by year-end. These assumptions would result in a LLC ratio of 171.5%.
  • Focus on KUR programme. BRI’s People’s Business Credit (KUR) target of IDR71trn this year would be its key focus. The bank would upgrade potential KUR borrowers to its commercial micro lending under the General Rural Credit (Kupedes) programme. We expect a 15.4% growth in micro lending this year.
  • Maintain BUY and IDR14,500 TP. The GGM-derived TP implies a 2.18x 2017F P/BV multiple. Key risks are a higher-than-expected contribution from the KUR loans-to-total loan book and higher-than-expected credit cost. (Eka Savitri)