Bank Syariah Indonesia (BRIS IJ) - In-line 1Q24 earnings: strong growth intact, driven by improving asset quality, offsetting lower NIM

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Bank Syariah Indonesia (BRIS IJ)

In-line 1Q24 earnings: strong growth intact, driven by improving asset quality, offsetting lower NIM

BRIS reported net profit of Rp1.7tr (+17% yoy, +14% qoq; in-line at 26% of FY24F est), supported by positive NII growth and lower provisions.
1Q24 financing growth of +16% yoy helped the NII growth to remain positive at 3% yoy and qoq, despite a lower NIM caused by higher CoF.
We maintain our FY24F forecasts and valuation and retain our BUY call, noting superior earnings growth vs. its peers as the key catalyst.

Healthy NP growth on the back of declining provisions

BRIS booked 1Q24 net profit of Rp1.7tr (+17% yoy, +14% qoq), mainly driven by a 28% yoy decline in provisions and a 4% rise in PPOP, supported by a 3% and 22% yoy increase in NII and other operating income, respectively. The 1Q24 net profit is 26% of both our FY24F and the consensus, i.e., inline. Despite the 66bps lower NIM, BRIS’ 1Q24 net interest income growth was supported by the growth in financing to Rp247tr (+16% yoy, +3% qoq; still inline with the management`s target and our FY24F estimate of c. 15%.

Declining NIM due to the rising cost of funds

BRIS reported declining NIM to 5.3% in 1Q24 (-66bps yoy, -39bps qoq) reflecting the higher CoF of 2.6% (+61bps yoy, +37bps qoq) while the loan yield remained flattish at 8.4%. Despite the lower NIM, the bank grew its other operating income to Rp1.2tr (+22% yoy, +7% qoq), comprising c. 30% of the NII (from c. 25% in 1Q23). As BRIS is in the early stage of establishing more transactional banking, we continue to expect double digit growth in the foreseeable future.

Lower provisions reflect better asset quality

We deem the lower provisions of Rp549bn in 1Q24 (-28% yoy, but still double vs. 4Q23’s low base) as justified given the NPLs decline to 2.0% from 2.1% in 4Q23 and 2.3% in 1Q23. The asset quality improvement is inline with the management`s intention to keep NPLs at below 2% in FY24F. Coupled with the strong loans growth, CoC fell to 0.9% in 1Q24, down from 1.4% in 1Q23.

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

We maintain our FY24F forecasts and valuation employing a GGM based model with fair value PBV of 2.6x to FY24/FY25 avg. BVPS of Rp1,023. We believe the premium valuation is justified as the bank’s higher growth trajectory vs its peers remains intact. Risks to our view include slowing financing growth, higher-than-expected CoF, and deteriorating asset quality.

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