VCB_Jul 8 2014 by HSC.pdf

8/11/2019 VCB_Jul 8 2014 by HSC.pdf

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Tuesday, July 8th2014MINI REPORT

Please refer to the disclosures of potential conict of interest and the disclaimer at the end of this report

www.hsc.com.vn

Analyst - Pham Thuy [email protected]

According to the media Vietcombank (VCB - Outperform) posted rela-

tively strong credit growth of 6.6% YTD up to June FY2014. Overall we

likely saw growth in net interest income.

Provisioning would have increased moderately.

For 1-H FY2014, our guidance for VCBs earnings calls for VND2,700

billion (+3.7% y/y) in pretax-prot. Which puts them on target.

For the full term, HSC forecasts that VCB will earn VND5,601 billion pre-

tax prot (-2.5% y/y) on the back of 15% credit growth and 13% deposit

growth.

We also assume provision charges will jump 44% while NPLs this year

likely to come in sub 3%.

VCB is currently trading at FY2014F P/B of 1.6x vs. industry peers 1.1x.

Premium full justied. Outperform rating.

Source: HSC calculation

Source: HSC;

Price chart Earnings and Valuation

Stock Data as of July 8th2014

Price (VND) 26,200

Current listed shares 2,317,417,076

Outstanding shares 2,317,417,076

52 Week high 31,80052 week low 23,300

Price change (3 months) -16.0%



Free oat (share) 182,844,207

Trading value (VNDmil)(average last ve trading days)

8,648

Market Cap (VNDmil) 60,716,327

Market Cap (US$mil) 2,881

Total room (no. of share) 530,456,769

Current room (no. of share) 475,075,806

Foreign owned ratio (%) 20.5%

Foreign ownership limit (%) 22.9%

Source: VCB, (F): HSC forecasts

Main Ratios FY2012 FY2013

Capital Adequacy Ratio

CAR 14.8% 13.0%

Equity/Total Assets 10.0% 9.0%

Equity multiplier=TA/Equity 10.0 11.1

Asset quality

Risk assets to total assets ratio 83.1% 79.0%

NPL group 3-5 2.4% 2.7%

Liquidity

Liquidity assets to total assets ratio 40.1% 39.9%

Interbank borrowing to total deposits 10.7% 11.7%

Protability & Efciency

ROA 1.1% 1.0%

ROE 12.5% 10.4%

Net interest margin 3.0% 2.6%

Cost to income ratio 39.8% 40.3%

Unit: VNDmn FY2013 FY2014F %y/y FY2015F %y/y

Total assets 468,994,032 501,652,207 7.0% 566,413,322 12.9%

Total loans 274,314,209 315,461,340 15.0% 369,089,768 17.0%

Total customer deposit 332,245,598 375,437,526 13.0% 424,244,404 13.0%Net interest incomes 10,782,402 12,393,780 14.9% 14,497,291 17.0%

Non interest incomes 4,724,952 5,192,955 9.9% 5,288,359 1.8%

Total operating income 15,507,354 17,586,735 13.4% 19,785,650 12.5%

Operating expenses (6,244,061) (6,908,134) 10.6% (7,611,344) 10.2%

Pre-provision prot 9,263,293 10,678,601 15.3% 12,174,306 14.0%

Provision expenses (3,520,217) (5,077,260) 44.2% (5,713,408) 12.5%

Prot before tax 5,743,076 5,601,340 -2.5% 6,460,899 15.3%

Net prots 4,377,582 4,369,045 -0.2% 5,039,501 15.3%

NIM 2.6% 2.8% 2.9%

Gross prot margin 60% 61% 62%

Net prot margin 28% 25% 25%

VALUATION FY2013 FY2014F FY2015F

Average outstanding shares 2,317,417,076 2,405,275,196 2,665,029,637

Year-end outstanding shares 2,317,417,076 2,665,029,637 2,665,029,637

Market price (end of period) 26,800 26,200 26,200

Market capitalization (VNDmn) 62,106,778 69,823,776 69,823,776

Market capitalization (US$mn) 2,947 3,313 3,313

EPS (adjusted) in VND 1,604 1,542 1,605

BVPS in VND 18,290 16,062 17,568

P/E (time) 16.71 16.99 16.32

P/B (time) 1.47 1.63 1.49

JS COMMERCIAL BANK FOR FOREIGN TRADE OF VIETNAM

OUTPERFORM

(VCB: HSX - Financial)


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Page 2www.hsc.com.vn

Increase in loans to SOEs in Q2 likely pushed YTD

credit growth to 6.6% at the end of the 1-H. With deposit

growth even stronger although deposit rates offered are

now the lowest in the sector. NIMs look unchanged on

Q1 FY2014 and overall we likely saw net growth in net

interest income. With other divisions performing fairly

well. Provisioning would have increased moderately we

think given that the effects of Circulars 02 & 09 have

been well anticipated at this bank which can easily claim

to set the pace for credit risk management and aggres-

sive provisioning.

For the full term our guidance for VCB will earn VND5,601

billion pre-tax prot (-2.5% y/y) on the back of 15% credit

growth and 13% deposit growth compared to the banks

target of 13% for both credit and deposit growth. We alsoassume provision charges will jump 44% to VND5,077

as they work to complete necessary provisioning in the

current cycle as soon as possible. The bank is also ex-

panding their network quite rapidly and trying to expand

their share of the retail market backed by their traditional

strength in debit & credit cards. NPLs this year likely to

come in sub 3% as they keep a rm grip on the balance

sheet risk. VCB is currently trading at FY2014F P/B of

1.6x vs. industry peers 1.1x. Premium full justied al-

though near term outperformance is unlikely following a

recent run. For longer term investors however we reiter-

ate our Outperform rating.

According to the media Vietcombank (VCB - Outper-form) posted relatively strong credit growth of 6.6%YTD up to June FY2014 or equivalent to a loan bookof VND292 trillion. Which is quite surprising becauseup to May growth was up only 3.6-3.7% (equivalentto VND284 trillion). While lendings to SMEs appear tobe stagnant, we suspect the jump was driven by somelarge loans to SOE. In fact during Q2 FY2014, we no-tice that VCB signed some big contracts with Ninh BinhFertilizer, PV Drilling, Vinacomin and Vietnam Rub-ber Group offering new loans. And given VCBs strong

brand name, we estimate deposit was strong at around10%-12% YTD. Although given that VCB currently offersthe lowest deposit rates on the market growth may havetailed off recently. With this late surge in credit growth,we estimate that VCBs LDR improved a tad from 78.4%in Q1 FY2014 to 78.6% in Q2 FY2014. Then we thinkother segments such as fee income either performed alittle better than expected or in line.

We also note an improvement in asset quality, given theswap of around VND1,000 billion of bad debts to VAMC(equivalent to 0.4% of the total loan book) in Q2 FY2014.In any event we have held for some time that the bankshould be less affected by the implementation of Cir-cular 02 and Circular 09 than others as they have al-ways been conservative in loans classication approach

and aggressive in provisioning. Hence we estimate thatVCBs 1-H NPL ratio will be less than 3%. Set againstthat however is the fact that the burden of expectationlies with VCB to set an example in credit risk manage-ment by continuing its aggressive provisioning stance.

For 1-H FY2014, our guidance for VCBs earnings callsfor VND2,700 billion (+3.7% y/y) in pretax-prot. Which

puts them on target to achieve their full year forecastof VND5,500 billion. For FY2014, we keep our forecastthat VCB will earn VND5,601 billion pre-tax prot (-2.5%

y/y) on the back of 15% credit growth and 13% depositgrowth compared to the banks target of 13% for bothcredit and deposit growth. We assume provision charg-es of VND5,077 (+44% y/y), including VND220 billion inprovision for the VND1,100 billion of bad debts swappedto the VAMC in FY2013. Generating a post write off NPLratio of 2.9% after writing off 1.2% of the loan book andswapping another VND1,000-1,200 billion (equivalent to0.32-0.38%% of total loan book) to the VAMC in FY2014.

VCB has a fairly clean balance sheet compared to peersand strives to stay ahead of the curve in terms of creditrisk management including provisioning. Thus we viewtheir reported NPLs as likely to be very close to the truegure, in sharp contrast to some peers.

VCB is currently trading at FY2014F P/B of 1.6x vs. in-dustry peers 1.1x. We think the valuation premium isjustied given how the bank is operated. However after

a steady increase over the past few months we expectthe stock to be a moderate performer for the time being.Reiterate Outperform.

VCB 1-H preview - looks likely to be in line following a jump in June credit growth. Reiterate Outperform.


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INCOME STATEMENT (VNDmillion) FY2012 FY2013 %y/y FY2014F %y/y FY2015F %y/y

Interest income 31,746,997 28,298,671 -11% 31,524,928 11% 36,893,215 17%

Interest expenses (20,792,904) (17,516,269) -16% (19,131,147) 9% (22,395,924) 17%

Net interest income 10,954,093 10,782,402 -2% 12,393,780 15% 14,497,291 17%

Fee and commission income 2,250,538 2,745,171 22% 3,156,947 15% 3,472,641 10%Fee and commission expenses (861,939) (1,125,800) 31% (1,294,670) 15% (1,424,137) 10%

Net fee and commission income 1,388,599 1,619,371 17% 1,862,277 15% 2,048,504 10%

Foreign exchange gain - net 1,487,751 1,426,859 -4% 1,598,082 12% 1,677,986 5%

Income from trading securities 76,742 22,172 -71% 50,000 126% 50,000 0%

Income from securities investment 207,631 160,461 -23% 150,000 -7% 200,000 33%

Other income 525,098 934,285 78% 1,200,000 28% 1,000,000 -17%

Equity income 468,583 561,804 20% 332,596 -41% 311,869 -6%

Total operating income 15,108,497 15,507,354 3% 17,586,735 13% 19,785,650 13%

Operating expenses (6,015,636) (6,244,061) 4% (6,908,134) 11% (7,611,344) 10%

Prot before provision loss for credit 9,092,861 9,263,293 2% 10,678,601 15% 12,174,306 14%

Provision loss (3,328,964) (3,520,217) 6% (5,077,260) 44% (5,713,408) 13%

Prot before tax 5,763,897 5,743,076 0% 5,601,340 -2.5% 6,460,899 15%

Income tax (1,336,691) (1,365,494) 2% (1,232,295) -10% (1,421,398) 15%

Net prot 4,427,206 4,377,582 -1% 4,369,045 0% 5,039,501 15%

Minority interests (23,500) (19,530) -17% (19,492) 0% (22,483) 15%

Net prot for their shareholders 4,403,706 4,358,052 -1% 4,349,554 0% 5,017,018 15%

Note: HSC forecast (F); Source: VCB reports;


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KEY RATIOS FY2012 FY2013 FY2014F FY2015F

Size

No. of branches and sub-branches 391 406 426 436

No. of employees 13,637 13,842 14,257 14,827

Capital Adequacy Ratio

CAR 14.8% 13.0% 11.5% 10.7%

Equity/Total Assets 10.0% 9.0% 8.8% 8.4%

Equity multiplier = TA/Equity 10.0 11.1 11.4 11.9

Asset quality

Risk assets to total assets ratio 83.1% 79.0% 80.3% 80.7%

NPL ratio groups 3-5 2.4% 2.7% 2.9% 2.7%

NPL ratio groups 2-5 16.3% 10.3% 17.6% 17.4%

Loan loss reserve coverage (group 2-5) 13.4% 22.8% 11.1% 11.2%

Loan loss reserve coverage (group 3-5) 91.4% 86.3% 67.4% 72.6%

Liquidity

Liquid assets to Total assets 40.1% 39.9% 35.3% 33.2%

Loans to customer deposits 84.2% 81.1% 83.6% 86.6%

LDR at C13 78.1% 79.2% 82.4% 85.3%

Interbank borrowing to total deposits 10.7% 11.7% 7.0% 7.9%

Loans/total assets 58.2% 58.5% 62.9% 65.2%

Asset Performance

Total revenue/ Total assets 9.4% 7.7% 7.8% 8.2%

Net income/ Total revenue 12.0% 12.8% 11.4% 11.5%

Avg Earning assets/ Avg Total assets 93.6% 92.4% 92.4% 93.4%

Protability & Efciency

ROA 1.1% 1.0% 0.9% 0.9%

ROE 12.5% 10.4% 10.2% 11.2%

Average funding cost 6.0% 4.5% 4.5% 4.8%

Average gross yield 8.7% 6.9% 7.0% 7.4%

Net spread 2.7% 2.4% 2.6% 2.6%

Net interest margin 3.0% 2.6% 2.8% 2.9%

Non-interest expenses over AEA 1.6% 1.5% 1.5% 1.5%

Net interest income/total operating income 72.5% 69.5% 70.5% 73.3%

Cost to income ratio 39.8% 40.3% 39.3% 38.5%

Growth Ratios

Asset growth 13.0% 13.2% 7.0% 12.9%

Loan growth 15.2% 13.7% 15.0% 17.0%

Deposit growth 25.3% 16.8% 13.0% 13.0%

Equity growth 45.1% 2.0% 1.0% 9.4%

Pretax prot 1.2% -0.4% -2.5% 15.3%

Net prot 4.9% -1.0% -0.2% 15.3%

Note: HSC forecast (F); Source: VCB reports


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Global Disclaimer

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