COMPANY FOCUS │ 26 July, 2021

BRI Agroniaga Buy (Initiation)

Target Price IDR 3,200 (+21.7% ups.)
Current Price IDR 2,630
Access of Capital for the New MSME (Gig Economy)
A target market that caters to the long-term structural change in future jobs
BRI Agro is currently in the process of transformation to focus on the gig economy
in the SME and retail consumer segments. Many gig workers are currently
underbanked and lack access to resources that can grow their financial wellness. The
number of gig workers is estimated to reach up to 74.8mn workers with total value
of USD314bn in 2025. In our view, Indonesia’s Omnibus Law (Government
Regulation no 35 of 2021) is structured in a way that would disincentives employees
seeking job security comfort, and make small and medium sized businesses better
off. The new scheme allows contract workers to have a 5 year initial contract + 5-
year extension, allows for termination in the middle of the contract with lower penalty
costs and lower average severance.

Supported by both offline and online ecosystems Prasetya Gunadi

BRI Agro will have 2 strong ecosystems; 1) Bank BRI’s ecosystem, mainly to [email protected]
021 - 2924 9098
collaborate with BRILink Agents (504k agents in 2020) to cross-sell BRI Agro’s
lending digital product (Pinang). In terms of funding, BRI Agro will also benefit from Willinoy Sitorus
BRILink agents who are asked to open BRI Agro’s accounts, before they can sell the [email protected]
product, 2) BRI Ventures’ ecosystem, where AGRO could leverage its sister 021 - 2924 9107
company’s ecosystem, in the form of indirect lending or partnership lending with
fintech companies under BRI ventures, including; Tanihub Group, Ayoconnect, Link
Aja, Modalku, Investree, Nium, Payfazz, AwanTunai, Modalrakyat, and Bukalapak. Stock Data & Indices
Bloomberg Code AGRO.IJ
Higher NIM and lower CIR to support earnings going forward JCI Member JAKFIN
Bank BRI Agro’s business model will be focusing on higher yield loan which will help MSCI No
AGRO to secure high single digit NIM (6.7% in 2025F vs. 2.7% in 2021F) and the JII No
use of AI in online credit scoring, could lower NPL level as well as operational costs LQ45 No
to support earnings growth going forward. We forecast BRI Agro to book IDR41bn Kompas 100 No
net profit in 2021F before rise to IDR557bn in 2023F (CAGR of 269%).
Key Data
Initiate with a BUY rating and TP of IDR3,200/share Issued Shares (mn) 21,343.3
We initiate coverage of Bank BRI Agro with a BUY rating and a TP of IDR3,200. We Free Float (est) 8.2%
derive our target price using the blended valuation of two different valuation Mkt. Cap (IDR bn) 55,706
methodologies; 1) We use price-to-earnings-growth ratio (PEG ratio) of 1.15x to Mkt. Cap (USD mn) 3,845
value BRI Agro, which is the weighted average of current price PEG for banks under ADTV 6 months (IDR bn) 197.6
our coverage, and 2) Customer lifetime value method is also appropriate to value 52 Wk-range 2,630/206
Bank BRI Agro, and assuming AGRO to have 6.5mn user base, the fair lifetime value
per customer would be USD768. Key risks: 1) slower than expected customer base Performance (%)
growth, 2) poor technology adoption, and 3) regulatory restriction on the newly YTD 1m 3m 12m
launched products. Absolute 155 61 165 1100
Relative
Company Data 153 60 163 1080
to JCI
Year-end 31 Dec 2019 2020 2021F 2022F 2023F
Net interest income 693.2 624.6 775.0 1228.6 2254.5
Pre-prov. op. profit 454.3 380.7 509.7 798.3 1544.2
Net profit 51.1 31.3 40.9 206.6 557.4
EPS (IDR) 2.4 1.5 1.9 9.7 26.1
EPS growth (%) (75.0) (38.8) 31.0 404.7 169.8
P/E (x) 831.8 1358.7 1037.5 205.6 76.2
BVPS (IDR) 207.3 210.0 200.9 202.8 212.5
P/B (x) 9.6 9.5 9.9 9.8 9.4
DPS (IDR) n.a. n.a. n.a. n.a. n.a.
Dividend Yield (%) n.a. n.a. n.a. n.a. n.a.
ROAE (%) 1.1 0.7 0.9 4.6 10.9

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 Company Background
Income Statement
2020 2021F 2022F 2023F 2024F 2025F
Year-end 31 Dec (IDRbn)
PT Bank Agroniaga (AGRO) is a
Interest income 1,932 1,975 2,696 4,254 6,190 8,765
subsidiary of PT Bank Rakyat
Interest expense 1,307 1,200 1,467 2,000 2,674 3,578
Major Shareholders*
Indonesia (BRI) which is currently in
Net interest income 625 775 1,229 2,254 3,515 5,187
the process of transformation to
Non-interest income 70 56 58 60 62 64
serve the underbanked market in
Total operating income 695 831 1,286 2,314 3,577 5,251
the gig economy
Operating expenses 314 321 488 770 1,120 1,587
Pre-prov. op. profit 381 510 798 1,544 2,457 3,665
Provisions expense 323 459 518 777 1,095 1,525
Operating profit 58 50 280 767 1,361 2,140
Non-op. inc./(exp.) 6 7 7 7 7 7
Major Shareholders
Pre-tax profit 64 57 287 774 1,368 2,147
C orporate tax 33 16 80 217 383 601 PT Bank Rakyat
86.1%
Minorities 1 2 3 4 5 6 Indonesia Tbk
Net profit 31 41 207 557 985 1,546 Public 13.9%
EPS (IDR) 1.5 1.9 9.7 26.1 46.2 72.4

Balance Sheet
2020 2021F 2022F 2023F 2024F 2025F
Year-end 31 Dec (IDRbn) SWOT Analysis
Placement with other banks 332 266 279 293 308 323
Loans 19,492 19,975 22,524 33,773 47,620 66,305
Strength Weakness
Marketable securities 3,391 4,408 4,672 4,953 5,250 5,565
Supported by Low recovery
Other int-earning assets 5,321 4,104 4,310 4,525 4,751 4,989
Financial assets impairment 1,013 1,273 1,641 2,318 3,313 4,738
strong rate during
Net earning assets 27,522 27,480 30,144 41,225 54,616 72,443
ecosystem from economic
Fixed assets 405 425 446 469 492 517 Bank BRI and downturn, as
Other assets 130 131 80 140 140 140 BRI Ventures digital banks’
Total assets 28,015 28,479 30,975 43,453 59,529 81,413 loans are mostly
C ustomer deposits 22,995 23,365 25,520 37,359 52,355 72,584 unsecured
Deposits from other banks 213 234 281 338 405 486
Borrowing and sub-debts 1 2 3 4 5 6
Opportunity Threat
Other liabilities 263 290 362 369 377 384
Large unbanked Tight
Total liabilities 23,728 24,151 26,440 38,360 53,451 73,789
and competition to
Minorities 1 2 3 4 5 6
underbanked become market
Equity 4,288 4,329 4,535 5,093 6,078 7,624
Total liabilities and equity 28,015 28,479 30,975 43,453 59,529 81,413
population in leader in digital
BVPS (IDR) 210.0 200.9 202.8 212.5 238.6 284.8
Indonesia banking

Breakdown
2020 2021F 2022F 2023F 2024F 2025F
Year-end 31 Dec (%)
As % of earning assets
Gross loan 68.3 69.5 70.9 77.6 82.2 85.9
Marketable securities 11.9 15.3 14.7 11.4 9.1 7.2
Other earnings assets 18.6 14.3 13.6 10.4 8.2 6.5
As % of loan book
Medium Loan 69.3 66.9 53.4 32.1 20.5 13.2
Retail and Partnership Loan 24.8 26.1 21.5 36.0 42.2 46.0
C onsumer 5.9 7.0 25.0 31.9 37.3 40.7
As % of deposit
C ASA deposit 23.9 33.3 37.1 52.7 62.9 71.9
Time deposit 76.1 66.7 62.9 47.3 37.1 28.1

Ratios & assumptions

2020 2021F 2022F 2023F 2024F 2025F
Year-end 31 Dec (%)
NIM 2.2 2.7 3.9 5.2 6.1 6.7
Loan-to-deposit ratio 84.8 85.5 88.3 90.4 91.0 91.3
C ost-to-income ratio 91.7 93.9 78.2 66.8 61.9 59.3
C redit cost 1.7 2.3 2.3 2.3 2.3 2.3
Gross NPL 5.0 5.5 4.0 4.0 3.5 3.5
NPL coverage 104.0 115.9 182.1 171.6 198.8 204.2
C AR 24.3 24.4 19.6 16.9 15.4 14.8
ROA 0.1 0.1 0.7 1.3 1.7 1.9
ROE 0.7 0.9 4.6 10.9 16.2 20.3
Average asset yield 6.8 6.9 8.5 9.8 10.7 11.4
Average funding cost 5.6 5.0 5.6 5.3 5.0 4.9
Loan growth 0.6 2.5 12.8 49.9 41.0 39.2
Deposit growth 8.8 1.6 9.2 46.4 40.1 38.6
EPS growth (38.8) 31.0 404.7 169.8 76.7 56.9

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Background
Migration to cater Gig Economy
Bank Rakyat Indonesia Agroniaga (BRI Agro), previously known as Bank Agroniaga, was established by Dana Pensiun
Perkebunan in 1989 and went public on the IDX in 2003. Subsequently, in 2012, Bank Rakyat Indonesia Tbk acquired
PT Bank Agroniaga. BRI Agro has focused on the agribusiness sector, and it is shown in the bank's loan portfolio where
it is mostly (50%-70%) distributed in the agribusiness sector.

Starting in 2019, Bank Indonesia developed the Indonesia Payment System Blueprint (IPSB), which sets the course of
development of the digital economy and finance in the country until 2025. BRI Agro then set up and launched their first
digital lending product, an application called “Pinang”. Pinang app is fully equipped with verification digital system,
digital scoring, and digital signature. In 2020, PINANG total disbursement reached IDR70.6bn and has been disbursed
to 18k debtors.

Since then, BRI Agro has been revamping its products and is currently in the process of transformation to enter new
business models (is on the verge of a massive digital transformation), which will serve the underbanked market in the
gig economy.

Figure 1. BRI Agro’s Super APP Figure 2. BRI Agro’s ownership structure

Source: The company, Trimegah Research Source: The company, Trimegah Research

Figure 3. BRI Agro’s transformation

Source: The company, Trimegah Research

PT Trimegah Sekuritas Indonesia Tbk – www.trimegah.com 3

Gig Economy Being the New MSME?
How big is the Gig Economy?

The gig economy has been growing in size since the pandemic. The central Bureau of Statistic’s data shows that during
the pandemic, workforces in Indonesia managed to record positive growth of 1.94mn workers, driven by gig workers
which could compensate for the loss of jobs from full time employment. The number of gig workers, which consists of
the half-unemployed and freelancers, reached 46.4mn workers in 2020, +27% YoY, and is estimated to reach up to
74.8mn workers with a total value of USD314bn in 2025. Meanwhile, many gig workers are currently underbanked and
lack access to resources that can potentially grow their financial wellness.

Figure 4. Gig Economy in Indonesia Figure 5. Workforce in Indonesia

(mn) (mn)
80 74.81 100
88.4 90.0
67.75 82.0
70
61.48
80
60 55.89
50.90
50 46.43
60
35.38 36.54 46.4
40
40 35.6 36.5
30

20
20
10

0 0
2018 2019 2020 2021F 2022F 2023F 2024F 2025F 2018 2019 2020

Half Unemployed Freelancer Full Time Employed Gig workers

Source: Central Bureau of Statistics Source: Central Bureau of Statistics

In our view, Indonesia’s Omnibus Law (Government Regulation no 35 of 2021) is structured in a way that would
disincentives employees seeking job security comfort, and make small and medium sized businesses better off. The
new scheme allows contract workers to have a 5 year initial contract + 5-year extension, compared to the old scheme’s
2-year initial contract + 1-year extension + 2 years second contract. The new regulation also allows for termination in
the middle of the contract with lower penalty costs; with the old law, employers had to pay the remaining term of the
contract in full. Moreover, the average severance under the new regulation is also lower than the previous one.

Table 6. Indonesia’s new severance payment

Completed years of service Severance payment

Less than 1 year 1 month w age
More than 1 year but less than 2 2 months w age
More than 2 years but less than 3 3 months w age
More than 3 years but less than 4 4 months w age
More than 4 years but less than 5 5 months w age
More than 5 years but less than 6 6 months w age
More than 6 years but less than 7 7 months w age
More than 7 years but less than 8 8 months w age
More than 8 years 9 months w age

Source: Government Regulation, Trimegah Research

PT Trimegah Sekuritas Indonesia Tbk – www.trimegah.com 4

BRI Agro’s Key Strategies
Backed up by 2 strong ecosystems
In order to accelerate its growth in the new segment, BRI Agro will not only rely on technology but also have relevant
ecosystems, particularly in the lending businesses. As one of the digital banks backed by incumbent banks together
with BCA Digital Bank, BRI Agro is likely to emerge as one of the dominant digital banks in Indonesia. BRI Agro will
have 2 strong ecosystems:

1. Bank BRI’s ecosystem

In our view, BBRI’s ecosystem provides huge opportunities for BRI Agro, as BBRI is the leader in the micro
lending segment, with 65% market share catering to 119.4mn customers and 11.8mn borrowers. Specifically,
BRI Agro will collaborate with BRILink Agents, who serve real-time online banking transactions for customers
using BRI’s miniATM EDC, to cross sell BRI Agro’s lending digital product (Pinang). In terms of funding, BRI
Agro will also benefit from BRILink agents who are asked to open BRI Agro’s accounts before they can sell the
product. It is worth to note that BBRI has 504k agents in 2020, +19% YoY, while the number of transactions
reached 728mn with a total transaction value of IDR843tn in 2020. BRILink agents also booked 80.3k loan
referrals and IDR13.3tn in total deposits by the end of 2020.

2. BRI Ventures’ ecosystem

BRI Agro will also leverage its sister company’s ecosystem, in the form of indirect lending or partnership lending
with fintech companies under BRI ventures. BRI Ventures, as the corporate venture capital within the BRI
Group, has an important role to support the acceleration of innovation by making strategic investments in
companies that have fast growth. BRI Ventures has made strategic investments in 12 fintech companies in
Indonesia, including: Tanihub Group, Ayoconnect, Link Aja, Modalku, Investree, Nium, Payfazz, AwanTunai,
Modalrakyat, and Bukalapak. In 2020, BRI Agro has collaborated with some fintech companies (Investree, Modal
Rakyat, Restock & Koinworks) for peer-to-peer lending with a total disbursement of IDR215bn, an outstanding
loan of IDR60bn, and total number of 264 accounts.

In our view, being supported by 2 strong ecosystems will give BRI Agro a competitive edge. Working with 500k
BRILink Agents and 550k Payfazz agents will allow BRI Agro to expand into the offline ecosystem. We believe
that the offline ecosystem is also important, given much of the unbanked population in Indonesia is concentrated
in rural areas with limited access to formal financial services, and most of them are reluctant to spend hours
visiting banks’ branches for services.

For the online ecosystem, BRI Agro will have 2 different lending models (direct and indirect). Under the indirect
model, BRI Agro will perform partnership with P2P lending to disburse unsecured personal loans or to be a
financial partner in Bukalapak and Ayoconnect ecosystems. Under the direct model, BRI Agro could be a financial
partner in tech ecosystems (Bukalapak, Ayoconnect) to disburse similar loan products to tech ecosystem
members, such as marketplace merchants and customers. Bukalapak, an e-commerce shopping portal, offers
a wide range of consumer products, and currently has 100mn users and 6mn merchants. Meanwhile, Ayoconnect
is a leading Bill Technology Company that enables billers, banks, wallets and other digital platforms to operate
and distribute bill payments end to end, with ~25mn users.

PT Trimegah Sekuritas Indonesia Tbk – www.trimegah.com 5

 Table 7. BRI Venture’s portofolio
Company Business Profile No of users Outstanding loan
Integrated agriculture e-commerce and financing
platform. It has two lines of business, TaniHub is an e-
commerce platform that connects farmers directly with 30k farmers and 250k
Tanihub Group IDR37bn
buyers, while TaniFund is a digital lending platform or buyers
peer to peer lending that provides financing facilities for
farmers to develop their businesses.
It is a leading Bill Technology Company. It enables
billers, banks, wallets and other digital platforms to
operate and distribute bill payments end to end. Its
technology platform and B2B bill solutions are unique in
Ayoconnect 25mn
the market. It connects 1,000+ utility Companies, Telco
Providers, Bill Aggregators, OTT Platforms and other Bill
Providers will 100+ B2C Platforms and Financial
Institutions in one centralized network.
LinkAja is a QR Code-based payment system managed
by four partnered state-owned banks (Mandiri, BNI, BRI,
and BTN), Telkomsel, Jiwasraya Insurance, and
Link Aja Pertamina. 61mn
LinkAja allows the customers to top up credit, buy
packages, pay merchants, pay bills, buy game vouchers,
donate, send money and many more from smartphone
Provider of a peer to peer lending platform intended to
connect small and medium-sized enterprises in
Modalku Singapore, Indonesia, Malaysia, and Thailand with retail 21k borrowers IDR147bn
and institutional lenders.
A new, revolutionary way to provide and apply for
finance. By matching lenders to borrowers within a single
marketplace. As a leading pioneer in the peer-to-peer
Investree lending space in Indonesia, Investree will help both sides 3.6k borrowers IDR1,003bn
to get a far better deal in order for them to effectively
and efficiently achieve their prime financial objectives.

Provider of an online money transfer platform designed

to facilitate cross-border money-transfer services. The
company's platform provides an international money 130mn end users in
Nium transfer and remittance payment platform, enabling more than 100 countries
users to transfer money with a fast, safe and cost-
effective way to initiate instance remittances.

A financial platform offers easy payment and money

management system Developer of a financial platform
designed to offer a payment alternative to Indonesian
Payfazz people. The company's financial platform offers easy 550k agents
payment and money management system, allowing
customers access to a variety of financial products.

AwanTunai is a supply chain company that offers

technology for MSMEs to grow using their line of products
AwanTunai that include financing, order system, POS and inventory 2.1k borrowers IDR104bn
management platform.
Provider of a peer to peer lending platform intended to
connect small and medium-sized enterprises with retail
Modalrakyat and institutional lenders. The ticket size could reach up 52k borrowers IDR875bn
to IDR2bn with tenor up to 6months
It operates an e-commerce shopping portal intended to
offer a wide range of consumer products. Its portal offers
products across a range of categories alongside easy
returns, flexible payment options like cash on delivery, 6mn merchants and
Bukalapak
credit or debit card transactions, and net banking, among 100mn users
others, enabling consumers to find and shop wide
varieties of commercial and personal products.

Source: The company, Trimegah Research

PT Trimegah Sekuritas Indonesia Tbk – www.trimegah.com 6

BRI Agro challenges and execution capability
The company has a very unique target market as it focuses on the gig economy in the SME and retail consumer
segments. Many gig workers are currently underbanked and lack access to resources that can grow their financial
wellness. The pandemic led more traditional workers to take up gig work in order to supplement a reduced income.
However, it is worth noting that gig workers could be challenging customers for banks due to their inconsistent income,
making it difficult to lend to them. This earnings challenge also puts them in need of financial management assistance,
and that is where BRI Agro steps in.

Figure 8. Indonesia Un- & Underbanked population Figure 9. SEA countries Un- & Underbanked population

Un- & Underbanked Population (in mn)

100% 0
90% 3 10
23% 80%
198
2
92
70% 44
9 49
60% 25
Banked 50%
40% 98
Underbanked 30% 3
47
51% 8 7
20% 10
Unbanked 104
20
10% 42 15 15
0%

26%

Banked Underbanked Unbanked

Source: Bain&Company, Google, Temasek, Trimegah Research Source: Bain&Company, Google, Temasek, Trimegah Research

The creation of an ultra-micro ecosystem (synergy between BRI, Pegadaian, and PNM) will complement BRI Agro to
serve the unbanked population as well, as it creates integrated financial services for the SMEs. Supported by its unique
ultra-micro group lending business model, each subsidiary will be focusing on different groups, depending on the size
and nature of the loan, therefore there will be no cannibalization among them.

Figure 10. BRI’s total addressable market

Source: Company, Trimegah Research

PT Trimegah Sekuritas Indonesia Tbk – www.trimegah.com 7

From our standpoint, BRI Agro has the capability to penetrate this new target market. Apart from the support from the
good ecosystems, the management team will play an important role in the execution capability of the bank. BRI Agro’s
new management consists of people with experience in the financial industry as well as in the digital transformation
department. It is very crucial for digital banks to have a solid management team with conventional banking experience,
especially to handle the SME segment. In BRI AGRO’s EGM in April-2021, the bank appointed Kaspar Situmorang as
President Director and Bhimo Wikan Hantoro as Director of Digital Business. Kaspar Situmorang previously worked as
Head of Digital Banking Development & Operation Division BRI (2017-2020), and played an important role in the launch
of Pinang digital platform and Board of Commissioner for LinkAja (2019-2021), while Bhimo Wikan Hantoro previously
worked as Head of Digital Solution Portfolio, Telkom Internasional (2018) and Senior Vice President of Digital
Transformation Leadership, Pegadaian (2018-2021). According to the management, BBRI has been focusing on the
development of the business model for lending disbursement to the gig workers for the past 2-3 years. Hence, we
believe the company is ready to penetrate the market.

Table 11. BRI Agro’s BOD and BOC profile

Board of Commissioner Position Work History Education History
Budi Satria President of - Division Head of BRI Corporate Secretariat - Master of Management, University of Indonesia
Commissioner Division (2014-2015)
- Head of Regional Office BRI (2015-2017)
- Consumer Banking Director of BTN (2017-2019)
Eko B. Supriyanto Independent - Independent Commissioner, Pelabuhan Maritim - Master of Management, Trisakti University
Commissioner* Learning (2020)
- Chief Editor, Infobank Magazine (2015-present)

Rina Saadah Independent - Expert Staff of the Minister of Youth and Sports - Master of Science, University of Indonesia
Commissioner* -(2018)
Expert Advisor to the Minister of Marine Affairs - LC, Al-Azhar University, Cairo, Egypt
and Fisheries
Rama Notowidigdo Independent (2019-2021)
- Co-Founder, Awan Tunai (2017-present) - Master of Business Administration, Saint Louis University, USA
Commissioner* - Co-Founder, Sayur Box (2017-present) - Bachelor of Computer Information System, Missouri State
University, USA
Achmad F. C. Barir Commissioner* - Head of Credit Risk Analyst Division, BRI - Master of Management, Bogor Agricultural University (IPB)
(2018-2020) - Bachelor of Business Economics, Gadjah Mada University
- Head of Wholesale Credit Risk Analyst Division,
BRI (2020-present)
Board of Director Position Work History Education History
Kaspar Situmorang President - Southeast Asia Director, Lotusflare (Google - Doctor (c.) of Business and Management, Bogor Agricultural
Director - Head of Digital Banking Development & University (IPB)
Operation Division BRI (2017-2020) - Master of Computer Engineering, University of Duisburg-
- Board of Commissioner Link Aja (2019-2021) Essen, Germany
Sigit Murtiyoso Business - Head of Institution Business Division BRI - Bachelor of Law, Sebelas Maret University
Director (2015-2018)
- Head of Special Branch Office BRI (2018-2019)
Bhimo Wikan Hantoro Director of - Telco Business Consultant Accenture Netherlands - Master of Science, Electrical Engineering, Delft University of
Digital - Head of Digital Solution Portfolio Telkom Technology, Netherlands
Business* Internasional (2018)
- Senior Vice President of Digital Transformation
Leadership Pegadaian (2018-2021)
Ernawan Legal, - Head of Management Accounting & Finance - Master of Agribusiness, Bogor Agricultural University (IPB)
Compliance & Division (2016-2018) - Bachelor of Accounting, Pakuan University
Human Capital - Head of Assets & Liabilities Management Division
Director BRI (2018-2019)
- Director of Operation and Finance BRI Agro
(2019-2020)
Operations & - Deputy Head of Regional Office Operations, - Master of Marketing Management/Information System, Gadjah
Arif Wicaksono
Finance Director Pekanbaru Regional Office (2014-2016) Mada University and Agder University College
- Deputy Head of Regional Office Operations, - Bachelor of Economics, Brawijaya University
Denpasar Regional Office (2016-2017)
- Head of Retail Payment Division BRI (2018-2020)
* Subject to be attained after Fit and Proper Test by Financial Authority Services

Source: The company, Trimegah Research

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Credit risk
Digital banks and fintech companies presumably utilize artificial intelligence (AI) and Machine Learning (ML) in online
credit scoring, which could lower NPL level as well as operational costs compared with conventional banks, as AI 1) can
reduce staff expenses by automating the whole credit risk management process, 2) reduces loan management time, 3)
can process a huge amount of information and detect patterns as much error-free as possible, and also 4) has a strong
fraud-detection system.

However, during an economic downturn or financial crisis, the loan at risk will inevitably increase, and some loans might
go into default and need to be written-off of the book. When that happens, digital banks will have a very low recovery
rate compared to conventional banks, as most of their loans are unsecured with no collateral value, compared to
conventional banks which usually have more than 100% collateral value.

In order to mitigate credit risk in the event of loan default when disbursing loans (direct and indirect through partners),
Bank BRI Agro works with external insurance providers to cover 100% of the loan. Even though it reduces margin by
200-300bps to use external insurance, we believe it is a good strategy to mitigate the credit risk especially during an
economic downturn.

PT Trimegah Sekuritas Indonesia Tbk – www.trimegah.com 9

Industry and competition in the digital market
Target market for digital banks in the country
In general, digital banks will focus on the younger generation, unbanked and underbanked market, as well as the SME
segment, which has a small loan ticket size and offers higher yield than the corporate segment. The unbanked consumer
who do not have access to basic financial services (a bank account) as well as the underbanked segment who are not
well served in financial services, are the biggest potential and the true growth engine in digital financial services, as
~77% of Indonesia’s population is either underbanked or unbanked.

Figure 12. SEA adult population Figure 13. Indonesia population in 2020 by Age

(mn)
400 5 23 55 181 67 70 Pre-boomer,
100 5.05mn people
2 Post-Generation Z,
15 2% Baby boomer,
90 18 29.40mn people, 31.24mn people
11% 11%
80 38
50 51
70
65 69
40
60 45

50 Notes
Generation Z, Generation X, Post Gen Z : <7 years old
40 75.49mn people 59.12mn people Generation Z: 8-23 years old
24 26 22% Millenials : 24-39 years old
28%
30 60 Generation X: 40-55 years old
13
10 Baby Boomer: 56-74 years old
20 45 Pre-boomer : >75 years old
37 Millennials ,
26 23 22 69.90mn people
10 21
26%
0
SEA Singapore Malaysia Thailand Indonesia Philippines Vietnam

Banked Underbanked Unbanked Total

Source: Bain&Company, Google, Temasek, Trimegah Research Source: Statistic Agency, Trimegah Research

The SME segment, the backbone of Indonesia’s economy (contributes 60% of nominal GDP), is also the target market
of the digital banks and they are also unbanked. Based on data from Indonesia’s Ministry for SME and Co-operatives,
Indonesia has ~64.6mn business enterprises and ~99.9% of them are in the SME category, which is the target market
of digital banks in the country. Higher smartphone penetration (70.05% in 2020) than banking penetration in Indonesia
(23% in 2020), makes customer’s adoption of e-commerce platforms and ride hailing easier, and provides opportunities
to offer embedded financial services.

Figure 14. Internet and smartphone penetration Figure 15. Business enterprises in Indonesia

90%
83.7%
80.5%
83.6%
80% 76.8%
80.4%
72.8% 76.0%
68.3% 70.1%
70%
64.0%
Business types IDRmn %
63.3%
Micro Businesses 64.60 98.67%
60% 56.2%
54.1%
Small Businesses 0.80 1.22%
50% Medium Enterprises 0.07 0.10%
44.4%

40% Corporate 0.01 0.01%

30%
2017 2018 2019 2020 2021* 2022* 2023*
Internet user penetration Smartphone penetration

Source: Statista, Trimegah Research Source: Indonesia Ministry of SME and Co-operatives, Trimegah Research

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Competition to be the market leader
In our view, BRI Agro has the tools needed to be one of the market leaders for bank digitals, as they have strong online
and offline ecosystems. However, the competition to gain market share will be tough as digital technology will continue
to transform the banking landscape in Indonesia. This, in turn, will lead to more M&A activities, as well as more strategic
partnership between conventional banks and e-commerce giants. The biggest competitors would be Bank Jago (ARTO
IJ) which is supported by GoTo Ecosystem that may have up to 130m users, Seabank which is supported by Shopee,
and Bank Aladin (BANK IJ) which partnered with Alfamart and Halodoc.

Table 16. Comparison of selected Indonesia digital banks

Source: Company, Bloomberg, Trimegah Research

PT Trimegah Sekuritas Indonesia Tbk – www.trimegah.com 11

Financial Projection
Changes in loan and deposit composition
BRI Agro is currently still in the transition phase to move from medium loan segment to digital loan in consumer and
retail and partnership segments, through direct lending as well as through the collaboration with its partners. The
contribution of the medium segment reached ~70% of total loan in FY20, which we expect to go down to 24% by 2023,
as digital loan products are expected to dominate the portfolio (>70%) by the end of 2025. Our loan forecast
assumptions are based on the growth of total number of accounts as well as the growth in the loan ticket size. We
forecast the loan book to reach IDR22.5tn in 2022F and gradually rise to IDR66.3tn 2025F, based on the assumption
that BRI Agro would be able to provide financial services to 2.5% of workers in gig economy in 2023F and to increase
to 4.5% by 2025F.

Figure 17. Loan breakdown by segment

(IDRtn)
Medium Loan Retail and Partnership Loan Consumer
80.0

66.3

60.0

47.6 41%

40.0 33.8 37%

22.5 32%
19.4 19.5 20.0 46%
20.0 6% 6% 7% 25% 42%
24% 25% 26% 36%
22%

70% 69% 67% 53% 32% 20% 13%

0.0
FY19 FY20 2021E 2022E 2023E 2024E 2025E

Source: Company, Trimegah Research

In terms of funding, during the initial stage of the transition, BRI Agro will benefit from BRILink and Payfazz agents who
are asked to open BRI agro’s accounts, before they can provide any financial services to the customers. Gradually, the
partnership with other platforms could enhance its deposit taking. The company aims for 10% of the gig workers to
open BRI Agro deposit accounts in order to enjoy any financial services provided by the bank. We forecast BRI Agro to
have 1-2mn deposit customers by 2023, which is quite conservative considering there are over 60mn gig workers in
Indonesia by 2023. In our estimation, the bank will offer term deposit rates within the LPS guarantee range, while for
its savings accounts, we forecast the annual interest of 3-4%, and the COF to be in the 3-5% range over the next 5
years.

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 Figure 18. Total deposits

Current Savings Time deposits

(IDRtn)

80 72.6

60 28%
52.4

37.4 37%
40
47%
23.4 25.5
21.1 23.0 47%
39%
20
67% 63%
86% 76% 30%
18% 24%
8% 15% 23% 24%
5%
9% 16% 18% 19%
0
FY19 FY20 2021E 2022E 2023E 2024E 2025E

Source: Company, Trimegah Research

Improvement in asset quality leads to higher provision ratio

The use of artificial intelligence (AI) and Machine Learning (ML) in online credit scoring could lower NPL level, with
better predictions than those by conventional banks’ system. Thus, we expect the NPL ratio to gradually improve to
4% by 2023 from 5% in 2020. However, we increase the credit cost for BRI Agro to 2.3% in 2021F-2023F vs. 1.7% in
2020. This is done in order to increase provision buffers to have a coverage ratio of 171% in 2023F from 104% in 2020,
given the different nature of the digital loan products, which are unsecured with no collateral value.

Figure 19. NPL vs. CoC

Gross NPL COC

(%)
9.0
8.0

7.0

5.5
5.0
5.0
4.0 4.0
3.5 3.5

3.0 2.3 2.3 2.3 2.3 2.3

2.0
1.7

1.0

FY19 FY20 2021E 2022E 2023E 2024E 2025E

-1.0

Source: Company, Trimegah Research

PT Trimegah Sekuritas Indonesia Tbk – www.trimegah.com 13

 Figure 20. Provision coverage ratio

(%)
240 Provison coverage ratio

198.8 204.2
200 182.1
171.6

160

115.9
120 104.0

80
53.8

40

0
FY19 FY20 2021E 2022E 2023E 2024E 2025E

Source: Company, Trimegah Research

Higher yield leads to higher NIM

BRI Agro will be focusing on higher yield loans going forward. Its digital loan product “Pinang” offers a 15-16% loan
yield, while the collaboration with some fintech companies also offers a 14-18% loan yield, depending on the risk profile
of each debtor. We believe CoF would still be manageable going forward, as the bank will offer term deposit rates within
the LPS guarantee range. BRI Agro’s NIM is expected to be higher going forward, reaching 5.2% in 2023F vs. 2.2% in
2020. It is worth noting that we have taken into account the premium fee of 200bps-300bps for an external insurer
into our NIM calculation.

Figure 21. Provision coverage ratio

(%) Cost of Fund Loan yield

14.0
12.6
12.1
11.4
12.0
10.3

10.0 9.0
8.3 8.1
8.0

6.1
5.6 5.6
6.0 5.0 5.3 5.0 4.9

4.0

2.0

0.0
FY19 FY20 2021E 2022E 2023E 2024E 2025E

Source: Company, Trimegah Research

PT Trimegah Sekuritas Indonesia Tbk – www.trimegah.com 14

Valuation
In terms of valuation, given premium ROE and distinctive business model, Bank BRI Agro cannot be compared directly
with conventional banks, as our business model is going to expand beyond banding and towards fintech. Consequently,
we derive our target price using the blended valuation of two different valuation methodologies: price-to-earnings
growth (PEG) ratio and life time value per customer.

PEG ratio method

We use price-to-earnings-growth ratio (PEG ratio) of 1.15x to value BRI Agro, which is the weighted average of current
price PEG for banks under our coverage, to get the fair valuation of IDR2,995/share. The valuation is still lower than its
best competitor Bank Jago (ARTO), which is currently trading at 1.3x PEG ratio.

Figure 22. Provision coverage ratio

BBCA BBRI BMRI BBNI BBTN BDMN BNGA PNBN ARTO

Price 29,950 3,720 5,725 4,570 1,250 2,150 900 755 14,000
EPS 1,338 305 691 773 291 350 125 160 22
P/E 22.4 12.2 8.3 5.9 4.3 6.1 7.2 4.7 636.4
EPS CAGR 2021-23F 11.2% 23.8% 24.5% 59.4% 28.7% 25.31% 18.9% 21.9% 490.1%
PEG 2.01 0.51 0.34 0.10 0.15 0.24 0.38 0.22 1.30
Market cap (IDRtn) 731.6 454.3 264.5 84.6 13.1 20.8 22.4 18.0 191.4
Weighted average PEG 1.15

Source: Bloomberg, Trimegah Research

Life time value per customer method

In our opinion, the customer lifetime value method is also appropriate to value Bank BRI Agro and to find EV/user as
the more comparable valuation metric with global peers. We value BRI Agro at IDR3,400/share, assuming Bank BRI
Agro to have 6.5mn user base, which implies the lifetime value per customer of USD768 for BRI Agro. It is worth noting
that the EV/user valuation for BRI Agro and its best competitor Bank Jago (ARTO) is higher than the average of global
digital banking peers, as we expect the NIM to be higher than global peers. Moreover, they are backed by the incumbent
bank and leading tech ecosystem, providing strong ecosystems.

Figure 23. BRI Agro customer lifetime value assumptions

Interest Income (IDR) 1,701,730
Interest expense (IDR) 799,934
Net interest income (IDR) 901,796
Fee based income (IDR) 23,922
Total income (IDR) 925,719
Opex (IDR) 308,050
PPOP (IDR) 617,669
Provisioning (IDR) 310,709
Profit after tax (IDR) 222,975

Discounted PAT: PAT/(k-g) 11,148,763

Customer lifetime value (IDR) 11,148,763
Customer lifetime value (USD) 768.88
Total users 6.5
Total market cap (IDRbn) 72,467
Total no of shares (bn) 21
Target Price (IDR/share) 3,395

Key assumptions
Average loan per user 21.97
NIM 5.2%
CIR 66.8%
COC 2.3%
LDR 90.4%
Tax rate 28.0%
Discount rate , K 11.0%
perpetual growth rate, g 9.0%

Source: Bloomberg, Trimegah Research

PT Trimegah Sekuritas Indonesia Tbk – www.trimegah.com 15
 Table 24. Valuation of several digital banks

D igit a l ba nk s C o unt ry o f o rigin S e rv ic e s V a lua t io n ( US D bn) # o f c us t o m e rs ( m illio n) V a lua t io n pe r c us t o m e rs ( US D )

It offers accounts featuring currency exchange,

debit cards, virtual cards, Apple Pay, interest-
Revoult United Kingdom bearing "vaults", commission-free stock 5.5 13 423
trading, crypto, and commodities
It offers debit cards, and offers overdrafts and loans
to the customers
Monzo United Kingdom 1.2 5 231

It offers free basic current account and a Debit card,

with available overdraft and investment products
N26 German and premium accounts for a monthly fee. 3.5 7 500

It offers various fee-free banking products,

including checking accounts with no minimum
Chime USA balance, an automated savings feature, and early 14.5 8 1813
wage access
It offers customers a no-fee, low-interest credit card
that customers can manage mobile app
NU Bank Brazil 25.0 34 735

It grants loans through face recognition technology

and big data credit ratings, and its "micro-loan"
WeBank China suite of inclusive financial loan products 30.0 200 150

It is a full digital banking pioneer, which is

supported by Gojek which has one of the largest
Bank Jago Indonesia online ecosystem in Indonesia 13.4 15 892

Source: Bloomberg, Trimegah Research

Blended valuation per share for different scenarios

There are several downside risks to our target prices and forecasts, such as slower than expected customer base growth,
poor technology adoption, and regulatory restriction on the newly launched products. Therefore, we value BRI Agro in
3 different scenarios, Bearish-Base-and Bullish, as the forecasts and valuation could alter depending on the market
condition.

In our base-case scenario, we get a blended valuation of IDR3,200/share, with a basic assumption that BRI Agro would
be able to provide financial services to 2.5% of workers in gig economy by 2023F and to reach 4.5% by the end of
2025, which would translate into 2021-2025F loan CAGR of 35% and 2021-2025F earnings CAGR of 148%.

Figure 25. Base-case scenario assumption

Ratios & assumptions

2021F 2022F 2023F 2024F 2025F
Year-end 31 Dec (%)
NIM 2.7 3.9 5.2 6.1 6.7
Loan-to-deposit ratio 85.5 88.3 90.4 91.0 91.3
C ost-to-income ratio 93.9 78.2 66.8 61.9 59.3
Loan growth 2.5 12.8 49.9 41.0 39.2
Deposit growth 1.6 9.2 46.4 40.1 38.6
EPS growth 31.0 404.7 169.8 76.7 56.9

Source: Trimegah Research

In our bearish-case scenario, we get a blended valuation of IDR2,400/share, with a basic assumption that BRI Agro
would be able to provide financial services to 2% of workers in gig economy by 2023F and to reach 4% by the end of
2025, while maintaining average loan yield the same as in base case scenario. This would translate into 2021-2025F
loan CAGR of 31% and 2021-2025F earnings CAGR of 144%.

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 Figure 26. Bearish-case scenario assumption

Ratios & assumptions

2021F 2022F 2023F 2024F 2025F
Year-end 31 Dec (%)
NIM 2.7 3.5 5.0 6.0 6.7
Loan-to-deposit ratio 85.5 87.0 91.0 91.5 92.4
C ost-to-income ratio 93.9 82.9 67.3 62.0 59.0
Loan growth 2.5 (0.8) 51.9 43.8 41.3
Deposit growth 1.6 (2.6) 45.3 42.9 40.0
EPS growth 31.0 232.5 259.0 84.0 61.4

Source: Trimegah Research

In our bullish-case scenario, we get a blended valuation of IDR3,750/share, with a basic assumption that BRI Agro
would be able to provide financial services to 3% of workers in gig economy by 2023F and to reach 5% by the end of
2025, while maintaining average loan yield the same as in base case scenario. This would translate into 2021-2025F
loan CAGR of 37% and 2021-2025F earnings CAGR of 155%.

Figure 27. Bullish-case scenario assumption

Ratios & assumptions

2021F 2022F 2023F 2024F 2025F
Year-end 31 Dec (%)
NIM 2.7 4.3 5.6 6.3 6.9
Loan-to-deposit ratio 85.5 86.5 91.0 91.7 92.3
C ost-to-income ratio 93.9 72.7 63.3 59.8 57.8
Loan growth 2.5 24.6 46.7 39.3 37.9
Deposit growth 1.6 23.1 39.5 38.2 37.1
EPS growth 31.0 646.9 129.1 63.5 50.6

Source: Trimegah Research

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 Research Team
Willinoy Sitorus Strategy, Banks & Industrial [email protected] +62-21 2924 9107
Fakhrul Fulvian Economics, Fixed Income [email protected] +62-21 2924 9097
Darien Sanusi Consumer Staples and Retail [email protected] +62-21 2924 9106
Heribertus Ariando Tobacco, Media and Healthcare [email protected] +62-21 2924 9060
Richardson Raymond Telco, Tower, and Infrastructure [email protected] +62-21 2924 9136
Prasetya Gunadi Banks [email protected]
Hasbie Commodities-related and Small Caps [email protected] +62-21 2924 6322
Kenny Vincent Economics, Fixed Income [email protected] +62-21 2924 6325
Kharel Devin Fielim Property, Construction and Infra [email protected] +62-21 2924 9103
Kimberly Bianca Generalist [email protected] +62-21 2924 9088

Corporate Access
Nur Marini Corporate Access [email protected] +62-21 2924 6323

Institutional Sales Team

Beatrix Susanto Head of Institutional Sales [email protected] +62-21 2924 9086
Henry Sidarta, CFTe Deputy Head of Institutional Sales [email protected] +62-21 3043 6309
Raditya Andyono Equity Institutional Sales [email protected] +62-21 2924 9146
Calvina Karmoko Equity Institutional Sales [email protected] +62-21 2924 9080
Dewi Yusnita Equity Institutional Sales [email protected] +62-21 2924 9082
Morgan Gindo Equity Institutional Sales [email protected] +62-21 2924 9076
Gerry Benedict Equity Institutional Sales [email protected] +62-21 2924 9081

Retail Sales Team

Andrew Jatmiko Head of Retail Equity Sales [email protected] +62-21 3043 6310
Hasbie Sukaton Deputy Head of Retail Sales [email protected] +62-21 2924 9088
Untung Wijaya Area Manager (Indonesia Timur) [email protected] +62-31 2971 8000
Jakarta Area
Ignatius Candra Perwira Kelapa Gading, Jakarta [email protected] +62-21 8061 7270
Ariffianto BSD, Jakarta [email protected] +62-21 5089 8959
Sumatera
Juliana Effendy Medan, Sumatera Utara [email protected] +62-61 4100 0000
Eastern Indonesia
Carlo Ernest Frits Coutrier Makasar, Sulawesi Selatan [email protected] +62-411 3604 379
East Java
Pandu Wibisono Surabaya, Jawa Timur [email protected] +62-31 2973 18000
Central Java, Area
Aloysius Primasyah Semarang, Jawa Tengah [email protected] +62-24 8600 2310
Laili Ma’muroh Solo, Jawa Tengah [email protected] +62-271 6775 590
West Java
Bhisma Herlambang Bandung, Jawa Barat [email protected] +62-22 8602 6290
Renny Nurhayati Hidayat Cirebon, Jawa Barat [email protected] +62-231 8851 009

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