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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