Post-merger value creation delivered, initiate with BUY rating
Key Takeaways :
• BRIS IJ as the largest domestic sharia bank aims to capture growth momentum in the domestic and global market. However, challenges remain on : 1) a relatively small size in the domestic and global market; 2) low-Islamic finance literacy as well as 3) a still limited product variety to meet customers needs.
• BRIS IJ successfully delivered post-merger value creation strategy : 1) balance sheet growth backed by CASA and funding; 2) cost reduction in CoF due to higher CASA ratio and lower CoC as asset quality improved; 3) digital strategy has performed well indicated by increasing customers base and higher transaction volume and 4) Islamic ecosystem also bring the positive impact on BRIS funding balance.
• Outlook remain positive on a short and longer-term, management guidance to deliver net income of IDR5-5.5tn is achievable in our view, We expect financing balance to grow +12.3% FY22-25F CAGR largely driven by consumers segment. In order to achieve +19.5% FY22-25F CAGR of net income growth, BRIS needs to focus on asset quality improvement and lower CIR.
• Investment thesis : 1) size and scale benefitting from government agenda to boost Sharia economy; 2) industry leadership across nearly all financial metrics; 3) post-merger value creation that successfully doubling the bank’s bottom-line in the last 2 years and 4) right issue that impact on higher CAR and increasing free-float shares to above minimum regulatory threshold of 7.5%.
• We initiate coverage on BRIS with a BUY rating and TP of IDR1,760/share implying 2.1/1.9x FY23F/F Y24F P/B at its post-merger -0.7x stdev using equal weight of blended valuation method DDM and relative valuation.
• Downside risks : 1) unfavorable macroeconomic condition that could weaken bank’s asset quality and 2) rising OHC, whereas the key upsides : 1) sizeable dividend payment and 2) rapid expansion in the Islamic ecosystem.
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