Digital acquisition to boost efficiency

BMRI results came above our expectations and cons. BMRI posted 2Q23 earnings of IDR 12.7tn (+0.9% QoQ, +24.5% YoY), translating to 6M23 earnings of IDR 25.2tn (+24.9% YoY), beating our and street estimates (SSI: 54.1%, cons: 53.5%). Provision expense came in at IDR 3.9tn in 2Q23 (+6.6% QoQ, +10.6% YoY), bringing its 6M23 figure to IDR 7.6tn (+2.1% YoY), implying a credit cost of ~1.19%, lower than the bank’s previous guidance (1.3%-1.5%). In addition to lower provision expense, further improvement in CIR ratio (36.8% in 1H23) was a major contributor to BMRI’s good results, with a chunk of it coming from lower other allowances costs and promotion expenses. The bank’s NII came in at IDR 24.3tn in 2Q23 (+5.6% QoQ, +13.8% YoY), translating into 6M23 NII of IDR 47.3tn (+13.1% YoY). Regarding loans, BMRI distributed IDR 1,267tn worth of loans in 1H23 (+5.6% QoQ, +11.3% YoY), with high-yielding segments, especially commercial segment, as the main driver, in line with the bank’s strategy. BMRI also reported positive growth in deposits, which was recorded at IDR 1,430tn in 2Q23 (+2.8% QoQ, +8.5% YoY).

Main focus going forward. Going into 2H23, we believe the bank’s CIR to normalize to ~39% in FY23F, though BMRI’s management remains confident that the bank will book a CIR of 36% in the long term, supported by digital acquisitions, which are expected to boost efficiency. It is worth highlighting that tightening liquidity will be the main challenge for the banking sector in 2H23; however, BMRI’s management remains positive that it could achieve its FY23 NIM target of 5.3%-5.6% despite limited room to re-price its loan yield in 2H23, as the bank will continue to focus on disbursing loan to high yield segments such as commercial and SME segments. Even with tighter liquidity, we believe the pressure on CoF will be manageable as the Livin app has continued to gain more popularity, and it will help the bank to increase its CASA ratio further. It is worth noting that 80% of BMRI’s customer CASA accounts are now linked to Livin.

2023F guidance During the analyst meeting, BMRI stated that it maintains its loan growth guidance at 10%-12%, and expects CoC to decline to 1.1%-1.3% in 2023F, compared to the previous guidance of 1.3%-1.5%, as BMRI already has an adequate coverage level and better asset quality management risk compared to other banks, and BMRI hinted that it expects its CoC to reach 1.0%-1.2% next year. Lastly, BMRI remains optimistic that its NIM could be in the range of 5.3%-5.6% this year and remain there next year.

BUY, TP of IDR 6,600/share. We reiterate our BUY rating on BMRI with a 12-month TP of IDR 6,600/share, implying a 2023F PBV of 2.5x. Downside risks: worse-than-expected economic recovery, lower-than-expected NIM and loan growth, and higher cost of credit