Analyst: Bank Mandiri's Business Prospects Positive. Credit Distribution Increases

STOCK MARKET – JAKARTA. PT Bank Mandiri Tbk (BMRI) is projected to continue recording solid credit growth in 2024. With various initiatives to be undertaken, BMRI is confident in achieving credit growth above the industry.

RHB Securities analyst Andrey Wijaya projects BMRI's revenue to be around 8%-9% for 2024 and 2025, following last year's revenue that exceeded expectations. Along with this, BMRI's return on equity (ROE) is expected to increase to 21% in 2024 from the previous 20%.

Andrey explained that BMRI's revenue in the fourth quarter of 2023 managed to beat expectations with a net profit of IDR 16 trillion, growing 16% quarter on quarter (QoQ) and 52% year on year (YoY). This resulted in the net profit of the red-plate issuer soaring 34% to IDR 55 trillion in 2023.

The main driver of last year's final quarter results was stronger-than-expected non-interest income, while operational expenditure (Opex) and cost of credit (CoC) were lower than expected. Thus, the return on average equity (ROAE) for the consolidated year 2023 jumped to 23.2% compared to 19.7% in 2022. Meanwhile, the CET1 ratio was a solid 20.8% compared to 18.6% at the end of 2022.

Quarterly net profit growth was supported by a 44% QoQ and 26% YoY increase in non-interest income due to better costs and recovery, as well as lower provision costs of -23% QoQ and -73% YoY.

These figures offset the net interest margin (NIM) which was pressured by the cost of funds (COF) due to tight liquidity conditions, strong loan growth, and deposits with special interest rates. Meanwhile, the cost-to-income ratio (CIR) remained flat at 40%, and the cost of credit (CoC) was only 0.3% quarterly.

From a risk perspective, risky loans (including restructured COVID-19 loans) continued to decline to 8.6% of total loans at the end of 2023, down from 9.8% in September 2023. Meanwhile, the gross non-performing loan (NPL) ratio was 1.19% compared to 1.49% in September 2023 and 1.92% in December 2022.

Bank Mandiri's total loans were observed to increase 16% YoY to IDR 1,398.1 trillion in 2023. The main drivers of BMRI's loans were the corporate and commercial segments, as well as subsidiaries. In addition, the SME, micro, and consumer book segments all increased by double digits.

Andrey said BMRI continues to target credit growth above the industry, led by its focus on the value chain ecosystem and wholesale segment. BMRI targets a loan growth guide of 13 – 15% YoY in 2024, while NIM is 5.3% - 5.5% and Cost of Credit (CoC) is 1% - 1.2%.

“We think BMRI's value chain ecosystem, which is focused on driving growth, still has strength, and note that its digital initiatives are increasingly enhancing its appeal,” Andrey told Kontan.co.id, Tuesday (13/2).

BRI Danareksa Securities analyst Victor Stefano said BMRI expects high revenue recovery to continue as it projects single-digit non-interest income growth at a medium to high level in 2024.

Bank Mandiri guides a stable to slightly lower NIM of 5.3%-5.5% in 2024. This figure is relatively stable compared to 5.48% in 2023 mainly due to the increasing risk of fund costs. Meanwhile, BMRI indicates that the cost of credit in 2024 will be at the level of 1.0%-1.2%, higher than in 2023 which was 0.85%.

BMRI's net profit is estimated to be 5% to IDR 57.74 trillion this year due to an 11% increase in non-operational income and slightly lower provisions -5% to offset the assumption of a slightly lower NIM. Thus, resulting in a higher return on equity (ROE) of 21.2% in 2024 than previously 20.8%.

“We are raising BMRI's 2024 estimate on higher recovery and lower provisions,” Victor revealed in research dated February 5, 2024.

Ciptadana Securities Asia analyst Erni Marsella Siahaan in research on February 1 stated that BMRI is targeting aggressive credit growth of 13%-15% in 2024. BMRI believes it can again record credit growth of 16% last year which outperformed the industry by 10% and the other four major banks by about 8%-14%.

From a liquidity perspective, the loan-to-deposit ratio (LDR) is still considered relatively sufficient at 86% in the fourth quarter of 2023 compared to 88% in the third quarter of 2023 thanks to a 15% QoQ and 8% YoY increase in checking accounts. Ciptadana Securities increased its net profit estimate for BMRI by 8% and 7% for 2024 and 2025, mainly based on better credit cost assumptions.

Erni maintains a buy recommendation for BMRI shares with a target price of IDR 7,500 per share, higher than the previous IDR 6,650 per share. Andrey also maintains a buy recommendation for BMRI with a higher target price of IDR 7,770 from previously IDR 6,970 per share.

Victor maintains a buy rating for BMRI with a higher target price of IDR 7,600 from previously IDR 7,300. This reflects a fair value price to book to value (PBV) of 2.5x due to higher ROE expectations, along with a fund cost assumption of 10.3%. However, the risk from BMRI's performance, namely the normalization of revenue recovery, and the company's ability to maintain lower fund costs, should be noted.