BRI Stock Price Correction: A Perfect Time to Back Up the Truck?

In the last few weeks, the investors’ eyes are staring to the BBRI stock price. What is happening to BBRI stock? Currently, BBRI stock is experiencing a decline of about 27% from its peak 2 months ago. What makes it interesting is, the same event does not occur to the other big bank stocks such as BBCA, BBNI, or BMRI. Well, although those banks are also experiencing a correction to its stock price (e.g -7% for BBCA), the slope is not as steep as BBRI.

Thus the question is, why is this happening? Would this decline happen temporarily or permanently? Is this a good chance for us to start collecting BBRI stock? You may find the answer by reading this article. Check this out!

Now, let us proceed to the topic. In my opinion, there are two major causes that make BBRI stock price decline:

1. Unfavorable Macroeconomics

Last March, the USA announced that their inflation rate increased to 3.5%. Well, of course a lot of investors would see this as a negative catalyst for BBRI. Why? Because there is a possibility for the Federal Reserve (Fed) to postpone the interest rate cut.

This might be one of the causes on why a lot of foreign investors withdraw their money from BBRI (well not only from BBRI, but also from other instruments such as bonds). This thing also makes the rupiah weaken against the dollar in the last 1-2 months. As we all know, not too long ago, the IDR to USD rate reached its peak at 16,253/USD.

When the macroeconomics sentiment is bad, no matter how good the company’s fundamentals are, the share price might go down like in this BBRI case.?

2. BBRI’s "weak" performance in 2024 1st Quarter (Q1)

When we check BBCA performance for Q1 2024, we can see that BBCA managed to increase its net income to IDR 12.9 trillion (increased 11.7% year on year).?

In contrast to BBCA, BBRI net income only increased by 2.69% year on year. Although nominally higher than BBCA (IDR 15.98 trillion vs 12.9 trillion), many investors might see this as a sluggish growth, especially when we compare it to BBRI’s peers. To many investors, growth is one important factor (if not the most important) that makes them decide whether to buy or sell a stock. There is also a worry among investors that the growth phase of BBRI might end soon just like what happen to Unilever Indonesia (please read my article here about Unilever if you haven’t read it https://www.dhirubhai.net/pulse/downfall-unilever-indonesia-stock-gregorius-arvan-a6l2c/ ).?

As a result, you, as an investor, need to re-check on: what might be the cause of this sluggish growth? Why BBRI’s growth is not as high as BBCA’s? Would this occur temporarily or permanently? In other words, if you think that this will only happen temporarily, then this is your chance to back up the truck and buy BBRI stock. Nevertheless, if you think that the slow growth will happen permanently, this is also your chance to re-think whether you should sell your BBRI stock (if you already own it) or ignore it and buy other stocks instead.?

BBRI Profit & Loss Statement for Q1 2024

Now, let’s take a look to BBRI’s P&L for Q1 2024 below:

As you can see from the figure above, the total interest revenue actually increased by 18% from IDR 42.460.352 mil to IDR 50.075.006 mil. Unfortunately, the net interest revenue only increased by 10% from IDR 32.779.173 mil to IDR 35.952.282 mil. Why is this happening? Because the increase in the interest expense is higher than the increase in the interest revenue (IDR 9.427.468 mil to IDR 13.919.540 mil). It is safe to say that the increase in the interest expense is due to the increase in the deposit interest %. Next, we move on to the figure below:

According to the figure above, what makes the BBRI net income only increase by 2% is due to an increase in the allowance for impairment losses on financial assets from IDR 7.093.358 mil to IDR 12.007.013 mil (increased by 69%!). What is “allowance for impairment losses on financial assets”? It means that the company expects that there will be some non performing loans (NPL)/bad debts that may occur in the future. In other words, you can imagine that when a bank lends some money to the customers, there will be some customers who repay the loan smoothly, and some others who do not. In banking industry, they usually use these terms to categorize their debtors:

1. Collect 1
2. Collect 2
3. Collect 3
4. Collect 4
5. Collect 5

Let’s say a debtor who is categorized as Collect 1 delays the debt repayment (late), the bank then will move him/her to Collect 2. Hence, when a debtor moves from Collect 1 to Collect 2 and so on, then the allowance for the NPL will also increase at the same time. The “higher” the category, the higher also the allowance %.?

When we check into more details, we can clearly see that the biggest contributor to the increase in the NPL allowance is from the credit given to the debtors: from IDR 6.598.628 mil to IDR 11.334.785 mil. In summary, at least for Q1 2024, the non performing loans at BBRI have surely increased. For any bank, when there is an increase in the NPL, then it is not a good sign. Thus, the important question for us investors is, would this happen temporarily or permanently? Let’s check the history of BBRI so we can get at least a clearer picture.

That is the interest revenue from BBRI between 2013 and 2023. I like the chart. Its revenue is increasing consistently with Compound Annual Growth Rate (CAGR) around 11.65%. Furthermore, if we look back to Q1 2024, BBRI’s interest revenue is still increased by 15% year on year. How about the net income?

As we can see, between 2013 & 2023, there were some phases where the net income declined (with CAGR around 10.91%). Especially during the covid time 2020-2021. Interestingly, if we compare this to the interest revenue above, in 2020 & 2021, the interest revenue still increased. How could this happen? Correct, it was due to the increasing allowance for non performing loans. During the covid time, so many debtors were experiencing difficulties in paying their debts. Thankfully, the condition did not last long. When the economy recovered & the debtors were able to pay their debts, then so is the BBRI’s performance. In 2022 & 2023, BBRI managed to hit an all time high in terms of their net income.?

The conditions above also reflected on the stock price. We can obviusly see above that during the covid time, BBRI stock price crashed around >50% from IDR 4600-ish to IDR 2100-ish (same with its net income that also fell down almost 50%), before finally the BBRI stock price hit an all time high earlier this year at IDR 6400/share. So what do you think guys? Do you think BBRI can still keep its growth for the coming years? Let me know your thoughts!

“The best thing that happens to us is when a great company gets into temporary trouble. We want to buy them when they’re on the operating table” - Warren Buffett

Happy Investing!