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Equity Bottom-Up

Asia Commercial Bank/Vietnam / Equity Bottom-Up

HCM Development J.S. Commercial Bank (HSX: HDB) has achieved impressive results with 110% Y-o-Y growth in PBT 2017 and 170% Y-o-Y growth in PBT 1Q2018. We hold the view that HDB will be able to maintain this robust growth following its retail banking strategy with advantages from huge customer ecosystem, extensive transaction network and efficiency improvements. The contribution of HD Saison – the third biggest player in the booming consumer finance sector - is another significant competitive advantage of HDB. HD Saison will be driving HDB’s growth in the future based on the largest POS network as well as the focus on high growing products like motorbike and consumer durables loans. Additionally, the merger with PGBank will be a milestone in the comprehensive strategic partnership between HDB and Petrolimex. This is a wise move to support HDB’s retail banking strategy based on a strengthen customer base and transaction network. These advantages are crucial to the bank’s sustainable growth considering (1) higher competition in retail and SME banking, and (2) SBV’s gradually monitoring closely credit expansion. Using the residual income method (RIM) and comparable method (P/B forward) with equal weight, we estimate HDB’s fair value at VND 42,000, equivalent to a P/B forward of 2.6x. Considering an expected VND1,000 cash dividend for 2018, the total return is 23% based on the closing price at 19 July 2018. We recommend to BUY the stock.

HCM Development J.S. Commercial Bank (HSX: HDB) has achieved impressive results with 110% Y-o-Y growth in PBT 2017 and 170% Y-o-Y growth in PBT 1Q2018. We hold the view that HDB will be able to maintain this robust growth following its retail banking strategy with advantages from huge customer ecosystem, extensive transaction network and efficiency improvements.  The contribution of HD Saison – the third biggest player in the booming consumer finance sector - is another significant competitive advantage of HDB. HD Saison will be driving HDB’s growth in the future based on the largest POS network as well as the focus on high growing products like motorbike and consumer durables loans.  Additionally, the merger with PGBank will be a milestone in the comprehensive strategic partnership between HDB and Petrolimex. This is a wise move to support HDB’s retail banking strategy based on a strengthen customer base and transaction network. These advantages are crucial to the bank’s sustainable growth considering (1) higher competition in retail and SME banking, and (2) SBV’s gradually monitoring closely credit expansion.  Using the residual income method (RIM) and comparable method (P/B forward) with equal weight, we estimate HDB’s fair value at VND 42,000, equivalent to a P/B forward of 2.6x. Considering an expected VND1,000 cash dividend for 2018, the total return is 23% based on the closing price at 19 July 2018. We recommend to BUY the stock.

HDB - Growth Drivers from Customer Ecosystem and Consumer Finance

Thematic (Sector/Industry)

New prospects for bad debt recovery prospects. The legal framework has continued to improve with the adoption of Resolution 42, which is considered to have resolved almost all issues that credit institutes (CIs) encounter in bad debt settlement as well as collateral foreclosure. However, to attract buyers, we think there are some other bottlenecks that need to be improved such as (1) the coordination and support of many related authorized agencies when applying the resolution and (2) the transaction market for bad debt and collateral to improve the asset’s liquidity. Therefore, in the short term, we think that the resolution will have a strong impact on the borrowers' sentiment. Adding to the change on borrowers’ sentiment, we believe that the recovery of the economy and consumer confidence as well as growing production will boost the recovery rate on bad debts.The combination of these three factors will be key drivers to the success of Resolution 42.Banking industry’s earnings experienced strong growth in 9M 2017, thanks to the loosened monetary policy. Total operating income of the 13 listed banks was VND83.4 trillion (+29% YoY) and NPAT was VND17.6 trillion (+25% YoY). We think the earnings growth was mostly supported by the easing monetary policy. Indeed, the business outlook of the the banking sector has been brightened after the ratio of short-term mobilized funds financing medium- and long-term loans increased to 60% under Circular 36 (it was previously a mere 30%). The ratio decreased to 50% in 2017 under Circular 06, yet it has had a negligible impact on the performance of banks since the ratio of listed banks is still significantly lower than SBV’s requirement of 50%. In addition, interest rates remained stable at low levels due to (1) low inflation and (2) larger deposits with lower cost from the State Treasury. Thanks to that, the banks’ net interest income grew significantly. We expect this trend to continue in the second half of 2017 and early 2018.Banks’ relative valuation has been upgraded. The Vietnam banking sector's picture shows many positive factors in 2017: (1) Credit rating agencies including Fitch, S&amp;P, and Moody's upgraded their rating for some of Vietnam banks; (2) Enjoying favorable macro environment, the banking industry has achieved high profit growth, with 6M 2017 NPAT growing 39% YoY and ROE increasing to 7.5% (2016: 5.7%) of which, state-owned banks and joint-stock commercial banks had the most improving ROE; and (3) Expected recovery rate of bad debt is higher, following the initiation of Resolution 42. As a result, the banking sector's relative valuation has been reversed, with an average PBR of listed banks increasing to 2.1x from 1.7x at the beginning of the year. Excluding the impact of VCB, the listed banks’ average PBR is around 1.7x, which is 20% higher than the average figure of region banks.State-owned banks, with the support of capital raising story and positive business results, are likely to perform well in 2018. CTG is currently having the most attractive valuation. The bank has been aggressive in reorganizing its operation model since 2014 and has accelarated its provision made for special bonds in 2017. Therefore, we expect that CTG’s earnings will grow more positively in 2018–2019 . VCB is quite good in its leading role. We forecast VCB’s NPAT CAGR will be over 20% in 2017–2019 with high loan loss reserve(LLR). Along with its capital raising plan, the story of divesting from other credit institutions will not only help to increase VCB’s Tier 1 capital but also bring extraordinary profit in 2018. Therefore, the market is likely to continue being bullish with VCB. In the most positive scenario, VCB’s PBR would be up to 3.5x while its average PBR in the recent three years has been around 2.7x.We are not optimistic about BID given our expectation that BID growth in 2017-2018 will be slower than its peers due to its large non-performing loans as well as high special bonds, low liquidity ratios, and operating expenses that are likely to rise sharply in the upcoming years,. Meanwhile, BID’s prospect will be more improved if it could successfully make private placement and if Resolution 42 could work well with its bad debts. Therefore, BID investors need to be conservative in considering the trade-off between capital gains and risks taken when investing in BID. BID’s PBR used to reach 2.7x in the past, and its average PBR in recent three years is 1.3x.The other commercial banks who will pilot Basel II are less pressure on capital raising than the state-owned banks. Most of them has paid stock dividends as a way to enhance Tier 1 capital. In this group, we are positive about ACB and MBB, which are expected to continue to grow strongly in 2018. However, we prefer ACB as the bank has constantly strengthened its asset quality and is consistent with its core business strategy in which the bank has experience. In contrast, MBB solved its growth story by expanding into new riskier businesses which would require more time to evaluate the effects.

New prospects for bad debt recovery prospects. The legal framework has continued to improve with the adoption of Resolution 42, which is considered to have resolved almost all issues that credit institutes (CIs) encounter in bad debt settlement as well as collateral foreclosure. However, to attract buyers, we think there are some other bottlenecks that need to be improved such as (1) the coordination and support of many related authorized agencies when applying the resolution and (2) the transaction market for bad debt and collateral to improve the asset’s liquidity. Therefore, in the short term, we think that the resolution will have a strong impact on the borrowers' sentiment. Adding to the change on borrowers’ sentiment, we believe that the recovery of the economy and consumer confidence as well as growing production will boost the recovery rate on bad debts.The combination of these three factors will be key drivers to the success of Resolution 42.Banking industry’s earnings experienced strong growth in 9M 2017, thanks to the loosened monetary policy. Total operating income of the 13 listed banks was VND83.4 trillion (+29% YoY) and NPAT was VND17.6 trillion (+25% YoY). We think the earnings growth was mostly supported by the easing monetary policy. Indeed, the business outlook of the the banking sector has been brightened after the ratio of short-term mobilized funds financing medium- and long-term loans increased to 60% under Circular 36 (it was previously a mere 30%). The ratio decreased to 50% in 2017 under Circular 06, yet it has had a negligible impact on the performance of banks since the ratio of listed banks is still significantly lower than SBV’s requirement of 50%. In addition, interest rates remained stable at low levels due to (1) low inflation and (2) larger deposits with lower cost from the State Treasury. Thanks to that, the banks’ net interest income grew significantly. We expect this trend to continue in the second half of 2017 and early 2018.Banks’ relative valuation has been upgraded. The Vietnam banking sector's picture shows many positive factors in 2017: (1) Credit rating agencies including Fitch, S&amp;P, and Moody's upgraded their rating for some of Vietnam banks; (2) Enjoying favorable macro environment, the banking industry has achieved high profit growth, with 6M 2017 NPAT growing 39% YoY and ROE increasing to 7.5% (2016: 5.7%) of which, state-owned banks and joint-stock commercial banks had the most improving ROE; and (3) Expected recovery rate of bad debt is higher, following the initiation of Resolution 42. As a result, the banking sector's relative valuation has been reversed, with an average PBR of listed banks increasing to 2.1x from 1.7x at the beginning of the year. Excluding the impact of VCB, the listed banks’ average PBR is around 1.7x, which is 20% higher than the average figure of region banks.State-owned banks, with the support of capital raising story and positive business results, are likely to perform well in 2018. CTG is currently having the most attractive valuation. The bank has been aggressive in reorganizing its operation model since 2014 and has accelarated its provision made for special bonds in 2017. Therefore, we expect that CTG’s earnings will grow more positively in 2018–2019 . VCB is quite good in its leading role. We forecast VCB’s NPAT CAGR will be over 20% in 2017–2019 with high loan loss reserve(LLR). Along with its capital raising plan, the story of divesting from other credit institutions will not only help to increase VCB’s Tier 1 capital but also bring extraordinary profit in 2018. Therefore, the market is likely to continue being bullish with VCB. In the most positive scenario, VCB’s PBR would be up to 3.5x while its average PBR in the recent three years has been around 2.7x.We are not optimistic about BID given our expectation that BID growth in 2017-2018 will be slower than its peers due to its large non-performing loans as well as high special bonds, low liquidity ratios, and operating expenses that are likely to rise sharply in the upcoming years,. Meanwhile, BID’s prospect will be more improved if it could successfully make private placement and if Resolution 42 could work well with its bad debts. Therefore, BID investors need to be conservative in considering the trade-off between capital gains and risks taken when investing in BID. BID’s PBR used to reach 2.7x in the past, and its average PBR in recent three years is 1.3x.The other commercial banks who will pilot Basel II are less pressure on capital raising than the state-owned banks. Most of them has paid stock dividends as a way to enhance Tier 1 capital. In this group, we are positive about ACB and MBB, which are expected to continue to grow strongly in 2018. However, we prefer ACB as the bank has constantly strengthened its asset quality and is consistent with its core business strategy in which the bank has experience. In contrast, MBB solved its growth story by expanding into new riskier businesses which would require more time to evaluate the effects.

Banking Industry Update Report - Macro Advantage to Drive Profit Growth of Banking Industry

Vietnam

Military Commercial Joint Stock Bank offers commercial banking services.  The Bank provides services in the areas of personal banking, corporate banking, financial banking, and e-banking.  Military Commercial's services include savings accounts, money lending, money transfers, foreign exchange, and money markets.

Military Commercial Joint Stock Bank (MBB VN)

Vietnam Prosperity Joint Stock Commercial Bank (VPBank) provides commercial banking services. The Bank offers domestic remittance services, savings account, personal loans, e-banking, trade financing, deposits, tax payment, foreign exchange, cash management, and other banking services. VPBank serves customers in Vietnam.

Ho Chi Minh Development Joint Stock Commercial Bank provides commercial banking services for retail and institutional customers. The Bank offers personal and car loans, overdraft, business financing, term deposits, current accounts, mobile banking, and online bills payment services. Ho Chi Minh Development serves customers in Vietnam.

Saigon Thuong Tin Commercial Joint-Stock Bank, known as Sacombank, operates various personal and corporate banking services such as deposits, foreign exchange transactions, loans, outward transfer, and international payments.

Vietnam Technological and Commercial Joint-stock Bank, doing business as Techcombank, provides banking services. The Bank offers savings, deposits, loans, credit cards, monetary management, trade finance, international payment, and foreign exchange services. Techcombank serves individuals, corporates, and the government sectors in Vietnam.

Vietnam Joint Stock Commercial Bank For Industry and Trade accepts deposits and offers commercial banking services.  The bank offers corporate and consumer loans; insurance; securities and derivatives brokerage; lease financing; money transfer; credit cards; and other services

Vietnam Joint Stock Commercial Bank For Industry and Trade (CTG VN)

Vietnam Joint Stock Commercial Bank For Industry and Trade

Saigon - Hanoi Commercial Joint Stock Bank provides commercial and personal banking services.

Vietnam Export Import Commercial Joint Stock Bank provides various banking services and products to organizations and individual customers in Vietnam. The company offers demand, savings, time, overnight, accumulated, and payment deposits; deposits with preferential, tiered, and daily interest rates; deposits with optional terms; and certificates of deposit. It also provides housing loans, loans for small traders, loans secured by savings books and valuable papers, loans for securities trading and investments, T-day securities loans, overseas study loans, auto loans, unsecured loans for employees, overdrafts, and loans by investment projects; factoring services; and prepaid, debit, credit, co-branded cards. In addition, the company engages in foreign currency trading by spot, swap, forward, and currency options and gold trading; provides money transfer and remittance services; packaging services for overseas studies; Internet, mobile, and SMS banking services; and bill payment services, such as electricity, water, air ticket, and automatic bill payment services, as well as telecommunication charge payment and collection services. Further, it offers centralized deposit management, payroll, and cash services; payment of travelers� cheques, and cheque issuance and collection; international settlement services. Additionally, the company engages in the receipt of funds entrusted for investment; receipt of funds from domestic and foreign credit institutions; discount of commercial papers, state bonds, and valuable papers; investment in securities; issuance of domestic and international cards; financial advisory services; corporate bond trading; and other banking services. As of December 31, 2014, it operated a network of 208 banking units, including 44 Branches, 163 transaction offices, and 1 savings fund. The company was founded in 1989 and is headquartered in Ho Chi Minh City, Vietnam.

National Citizen Commercial Joint Stock Bank provides various banking products and services for individuals and businesses in Vietnam. It offers term deposits, bank accounts, and other deposit products; and debit and credit cards. The company also provides loans for buying automobiles; short-term loans for business and production; loans for household items, travel, weddings, healing, and the other necessities of life; investment factory, warehouse, and office loans; home repair, overdraft, working capital, investment in machinery and equipment, and unsecured consumer loans; loans to buy capital property and land plots; and import commodity financing, as well as loans covering tuition fees and living costs for students. In addition, it offers overseas and domestic money transfer; foreign currency exchange; Western Union; phone recharge; and Internet, mobile, and phone banking services, as well as online payment services. The company was formerly known as Nam Viet Commercial Joint Stock Bank and changed its name to National Citizen Commercial Joint Stock Bank in May 2014. National Citizen Commercial Joint Stock Bank was founded in 1995 and is headquartered in Hanoi, Vietnam.

Bank for Investment and Development of Vietnam provides commercial banking services. The Company offers deposits, personal loans, e-banking, guarantees, and trade finance for customers, corporate, and financial institutions. Bank for Investment also offers foreign exchange, money market, derivatives, and debt market services.

Bank of Ayudhya Public Company Limited provides a full range of banking and financial services.  The Bank offers corporate and personal lending, retail and wholesale banking, international trade financing, asset management and investment banking services, to customers through its nationwide branches. It also has branches in Hong Kong, Vietnam, Laos, and Cayman Islands.

Columbia Banking System, Inc. is the holding company for Columbia Bank, a full service commercial bank.  The Bank serves small and medium-sized businesses, professionals, and other individuals through office in the Tacoma metropolitan area and contiguous parts of the Puget Sound region of Washington, as well as the Longview and Woodland communities in southwestern Washington.

International Bancshares Corporation, through its bank subsidiaries, provides commercial and retail banking services through offices in south and southeast Texas.  The Bank accepts deposits from the general public and uses those funds to make a variety of loans.

First Financial Bankshares, Inc. is a multi-bank holding company. The Company operates several banks located in Texas. The Banks accept deposits, originate loans, transmit funds, and perform other banking services.

Glacier Bancorp, Inc. is a multi-bank holding company.  The Banks attract deposits from the general public and use those funds to originate a variety of commercial and consumer loans.

Metropolitan Bank & Trust Company offers commercial and investment banking services. The Bank's business activities include borrowing and lending, trade finance, remittances, treasury, investment banking and savings.

Huishang Bank Corporation Limited is a commercial bank. The Bank provides banking services including loans, money market operations, treasury business, investment and trading services, and valet transactions.

Bendigo and Adelaide Bank Limited offers a variety of banking and other financial services, including first mortgage housing finance, retail and business banking, commercial finance, funds management, treasury and foreign exchange services, superannuation and trustee services. Bendigo also offers internet banking.

Fukuoka Financial Group, Inc. is a holding company established through the merger of the Bank of Fukuoka and Kumamoto Family Bank. As a financial group, the Company provides banking services including deposits, loans, foreign currency transactions. The Company also provides other financial services such as credit card, letter of credit, and leasing services.

Punjab & Sind Bank is a commercial bank. The Bank offers its customers a wide range of banking products and services.

Asia Commercial Bank attracts deposits and offers commercial banking services.

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Asia Commercial Bank/Vietnam (ACB VN)

HDB - Growth Drivers from Customer Ecosystem and Consumer Finance

HCM Development J.S. Commercial Bank (HSX: HDB) has achieved impressive results with 110% Y-o-Y growth in PBT 2017 and 170% Y-o-Y growth in PBT...

Rong Viet Securities

Banking Industry Update Report - Macro Advantage to Drive Profit Growth of Banking Industry

New prospects for bad debt recovery prospects. The legal framework has continued to improve with the adoption of Resolution 42, which is considered...

Rong Viet Securities

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