Bank Syariah Indonesia (BRIS IJ) - Better entry point emerges as growth prospects and asset quality are intact

Stock Code	Last Price	Change	Change %
DSSA	44,950	2,700	6.39%
DCII	169,200	2,250	1.35%
MFIN	5,400	800	17.39%
RDTX	12,450	700	5.96%
PTRO	2,910	460	18.78%
MKPI	25,200	450	1.82%
CUAN	7,325	350	5.02%
RATU	5,700	300	5.56%

Bank Syariah Indonesia (BRIS IJ)

Better entry point emerges as growth prospects and asset quality are intact

BRIS’ more resilient profile remains intact with a lower CoF from higher SA and a high payroll loans segment to support asset quality.
We think the lower implied cost of equity of 7.9% is justified given the bank`s higher earnings growth vs its peers at 15/14% in FY24/25F.
Maintain our FY24F forecasts and TP of Rp2,700; reiterate our Buy rating with superior earnings growth vs. its peers as the key catalyst.

Resilient CoF amid high interest rates

Compared to the few other big banks, BRIS recorded a relatively lower increase in CoF at +61bps yoy in 1Q24 vs 17-105bps for its peers. Despite the 37bps qoq increase in the CoF in 1Q24 to 2.6%, the management is optimistic that CoF will decline in 2Q24 and 3Q24 as funding remains dominated by SA (42% of total deposits as of 1Q24 vs. other banks’ 30-50%), which are the most resilient to changes in the reference rate. We continue to expect BRIS’ low-cost savings product (wadiah SA) to remain at 16% of the total bank`s deposits, supporting the bank`s CoF amid tight liquidity in the banking sector.

Sound asset quality despite the industry volatility

BRIS’ NPLs stood at 2.01% in 1Q24, the lowest since its merger. The progression of the bank’s NPLs is aligned with its target of <2%. Despite the upward trend in the industry’s SME & Microloans NPLs, BRIS’ exposure to this segment is minimal as SME-Micro only accounted for 17.6% of BRIS’ total loans portfolio as of 1Q24. Furthermore, while other banks faced challenges regarding CoC, BRIS achieved its lowest CoC since its merger (at 0.8%).

Premium valuation justified given strong growth prospects and franchise

We continue to expect the bank to book 15/14% EPS growth in FY24/25F driven by financing growth. While the bank is currently valued at 2.2x FY24F PBV (vs. ROE of 15.9%), we believe the historical implied cost of equity of 7.9% is justified given the bank`s underpenetrated Sharia market segment, strong brand to support its CASA franchise, robust asset quality from its payroll business, and potential efficiency from its scaling.

Maintain Buy rating on superior earnings growth vs peers as the key catalyst

We keep our FY24F projections and valuation unchanged, utilizing a GGM-based model with a fair value PBV of 2.6x applied to the average BVPS of Rp1,023 for FY24/FY25. We believe this premium valuation is justified given the bank's sustainably higher growth prospects compared to its peers. However, potential risks to our outlook include slower financing growth, a higher-than-anticipated cost of funds, and worsening assets quality.

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