Government Stimulus And Digital Adoption Will Unlock Market Opportunities

Key Takeaways

• Expansion in government-supported microfinance and digital adoption is driving loan growth, fee income, and improving cost efficiency through scaled digital channels.
  
• Diversification into fee-based products and enhanced risk management are boosting earnings quality, capital efficiency, and reducing reliance on interest income.
  
• Weak demand, deteriorating asset quality, high costs, slow digitalization, and regulatory pressures threaten growth, margins, and competitiveness in key segments.

Catalysts

Provides various banking products and services in Indonesia and internationally.

• Acceleration of government-backed fiscal stimulus and financial inclusion initiatives (such as the KUR and Village Cooperatives programs), supported by BRI's dominant microfinance infrastructure, is expected to expand the bank's addressable market and drive loan growth and fee-based income over the next several years.
  
• Substantial growth in digital adoption-evidenced by rising active users and transaction volumes on BRImo and QRIS-positions BRI to capture greater transactional revenue and cost efficiency, supporting both top-line growth and higher net margins through digital channel scaling.
  
• Efforts to upgrade risk management, underwriting, and human capital in micro and SME lending are laying the groundwork for normalized credit costs and reduced non-performing loan volatility over the coming periods, which should result in improved earnings quality and greater capital efficiency as legacy risks subside.
  
• The expansion of fee-based and wealth management products (including insurance, gold/pawn, and merchant services) will further diversify BRI's revenue mix, reduce reliance on net interest income, and enhance overall return on equity as economic conditions stabilize and secular demand for such offerings grows.
  
• Persistent growth in savings and CASA from both affluent and mass market customers-driven by branch network optimization and digital banking engagement-is reducing funding costs and supporting resilience in BRI's net interest margin, which is poised to recover as Indonesia's macro and liquidity environment improves.

Bank Rakyat Indonesia (Persero) Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Bank Rakyat Indonesia (Persero)'s revenue will grow by 26.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 42.4% today to 26.3% in 3 years time.
• Analysts expect earnings to reach IDR 70398.7 billion (and earnings per share of IDR 456.41) by about August 2028, up from IDR 56729.7 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as IDR60857.0 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.7x on those 2028 earnings, up from 10.8x today. This future PE is lower than the current PE for the ID Banks industry at 16.7x.
• Analysts expect the number of shares outstanding to decline by 0.12% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.33%, as per the Simply Wall St company report.

Bank Rakyat Indonesia (Persero) Future Earnings Per Share Growth

Risks

• Persistently weak demand and declining loan growth in BRI's core micro and SME segments, driven by challenging macroeconomic conditions and pressure on lower-income consumer purchasing power, could stunt revenue growth and constrain overall earnings.
  
• Elevated non-performing loans (NPLs) and special mention loans in the micro and SME portfolios-especially linked to legacy COVID/restructured loans and the problematic 2023 Kupedes vintage-pose sustained risk to asset quality, leading to higher loan loss provisions and downward pressure on net profit and margins.
  
• Rising cost of credit, particularly in the micro and PNM segments, combined with above-peer branch and personnel operating expenses, may erode net margins and limit the bank's ability to generate robust earnings growth if not offset by stronger digital adoption or cost efficiencies.
  
• Lagging progress in digital transformation and ongoing decline in the number of business merchant outlets threaten BRI's ability to compete with fintechs and digital-first banks, risking future customer acquisition and transaction fee income that underpin revenue diversification.
  
• Ongoing regulatory changes (such as new insurance accounting standards) and the need for continuous restructuring/write-offs could result in volatile earnings and additional compliance or operating costs, impacting long-term return on equity (ROE) and profitability.

Valuation

• The analysts have a consensus price target of IDR4526.714 for Bank Rakyat Indonesia (Persero) based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of IDR5400.0, and the most bearish reporting a price target of just IDR3580.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be IDR267957.4 billion, earnings will come to IDR70398.7 billion, and it would be trading on a PE ratio of 13.7x, assuming you use a discount rate of 12.3%.
• Given the current share price of IDR4080.0, the analyst price target of IDR4526.71 is 9.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.