April 14, 2025
Foreign Outflows, Local Opportunity: Accumulate Indonesia’s Banking Giants

Market Commentary
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The Jakarta Composite Index (JCI) is now trading near its lowest level in over a decade, not just in price terms but also in valuation. The forward P/E ratio has compressed sharply, forward P/E almost at -2 SD reflecting covid valuation—despite stable macro fundamentals and a resilient banking system.
 

Fueling this mispricing is a wave of massive net foreign outflows. Foreign investors have been exiting Indonesian equities aggressively, with the banking sector taking the brunt of the hit. What’s more striking is that foreign ownership in the major banks has declined to multi-year lows. Institutional investors who once anchored the shareholding structures of these banks have stepped away, not due to fundamentals—but due to global risk-off sentiment and rotation.
 

But here lies the opportunity.

Indonesia’s big four banks—BBRI, BBCA, BMRI, and BBNI—remain fundamentally strong. Their balance sheets are solid, earnings momentum is intact, and digital transformation continues to drive structural gains in cost efficiency and reach. Yet, they're now trading at a discount to their intrinsic value and historical multiples:

BBRI continues to dominate micro-lending and rural financing, with a 9.2x 2024F P/E, 15–18% ROE, and a strong dividend yield.
BBCA, the benchmark of quality, maintains industry-leading asset quality and tech adoption. With 17–21% ROE, it’s trading at 16.8x 2025F P/E—a multiple that historically marked entry points.
BMRI combines scale with improving digital services, currently trading at just 7.7x forward P/E with expected ROE rising to 18%. Among the most undervalued relative to peers.
BBNI, which has historically lagged, is catching up fast. At 6.6x P/E and 0.9x P/B, with ROE climbing toward 14%, it offers the most upside from a valuation rerating perspective.
 

Compared to other sectors, big banks offer the most attractive combination of value, quality, and upside. While the broader market is under pressure, these banks continue to deliver high ROEs (15–21%), solid earnings growth, and strong dividends, all while trading at multi-year low valuations. Therefore, we recommend to gradually add more weight on the banking sector.

 

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