HSC Daily Market Watch includes a comment on MBB (BUY)

Ngày đăng September 18, 2018

Market commentary – The VN index recovered with turnover still below recent averages. Market breadth widened while we also see that 26 stocks went to the ceiling and 18 stocks fell to the floor. Foreigners were less active net sellers to a noticeable degree. The put through market was more active with large deals in VHM & GEX and then a smaller deal in TIX seen going through.

 

Foreigners were active buyers of VHM; VNM and HPG. And net sellers of VJC and VRE.

 

  • Bank shares were mostly up, led by STB and BID.

 

Corporate news – VCB set to auction a 2.47% stake in MBB. At a price of VND 19,641. MBB prospects look strong. Reiterate BUY. Vietcombank (VCB Outperform) is set to auction 53.4 million shares of Military Bank (MBB Buy) shares on October 15. The primary purpose of this divestment is for VCB to comply with Circular 36, which sets a cap of 5% on the ownership of a credit institution in other credit institution. Which has resulted in them selling their stake in a number of joint stock commercial banks already.

 

The number of shares to be offered in the auction is equal to 2.47% of MBB outstanding shares, or 35.5% of VCB’s current holding of 150.6 million shares (6.97%). This is also equal to 9.5 times the average daily trading volume of MBB in the past three months. After the divestment, VCB’s stake in MBB will fall to 4.5%, and in other words, VCB will no longer be a major shareholder of MBB.

 

Quick conclusion. Reiterate BUY. We have a fair value price at VND 34,200, which values the bank at a forward P/B of 2.3xs. We forecast a 64.4% y/y increase in FY2018 PBT to VND 7,586 billion and for FY2019 we expect a 21.4% y/y increase in PBT to VND 9,849 billion. The announcement was long expected and should be seen as a positive catalyst. As the share price has been relatively depressed compared to the sector in recent months in anticipation of this event. Given that foreign investors cannot participate due to the FOL being full (the bank has locked it at 20%). Therefore, we expect that the auction will likely fetch only a modest premium to the starting price of VND 19,641 and the likely share price on the day. Looking forward the bank promises impressive growth this year and next despite more conservative credit growth caps being set by the SBV. New businesses such a consumer finance and life insurance are doing well and have contributed great to the burst in earning’s growth YTD. From next year, we will see the bank return to its long term sustainable earnings growth rate which is still a lot higher than most banks.

 

Starting price is VND 19,641 per share – which has been determined by an authorized independent valuator (Indochina Valuation), which is 11% below the stock’s closing price today. At that price this values MBB at a FY2018 P/B of 1.32xs which compares to the average aggregate P/B valuation of 2.11xs for the listed banking stocks.

  

Of course, the actual selling price will based on the auction results with some provisos. Specifically, selling price cannot be lower than the starting price and MBB’s closing price on the auction date, which is October 15. If successful, the divestment of these shares should earn VCB a gain of at least VND 608 billion.

 

Domestic investors will be the only participants as the FOL is full – MBB’s FOL is still locked at 20% and has been full for quite some time. Therefore, only domestic investors will be able to participate in the auction. Without the participation of foreign investors group, and given that MBB’s free float is quite high, we expect the selling price will be fairly close to the starting price.

 

In fact, MBB’s share price has been under pressure in the past few months, which we think is partially due to the overhang from the long expected VCB divestment. MBB shares has decreased 10% while VCB share has increased 11% since June 1st, 2018. Now that details of important unknown factors including the date, the mechanism, and the floor price have been released, we think this event will be is positive for MBB shares in the medium and longer term.

 

We still believe that MBB’s fundamental are the best amongst local JSCB with a very positive outlook for FY2018 and FY2019.

 

For FY2018, HSC calls for a 64.4% y/y increase in FY2018 PBT to VND 7,586 billion – Our key assumptions are as follows;

 

  • We assume credit growth of 15.9% y/y to VND 213,500 billion given the conservative guidance from SBV.

 

  • We then assume deposit growth of 9.2% y/y to VND 240,428 billion.

 

  • We expect NIM to improve by 30 bps to 4.71%.

 

  • We also expect NII will increase to VND 14,363 billion (+28% y/y).

 

  • Further expect non-interest income will increase to VND 4,300 billion (+62.4% y/y).

 

  • We expect operating expenses to increase by 40% y/y to VND 8,406 billion.

 

  • Then assume that total provision expenses will come to VND 2,671 billion (-17.9% y/y).

 

  • We then assume a post write-off NPL ratio at 1.2% at end FY2018, after writing off VND 1,708 billion (equivalent to 0.8% of loan book).

 

With this we forecast that pretax profit will rise 64.4% to VND 7,586 billion generating an EPS of VND 2,656. And BVPS of VND 14,866 generating a forward P/B of 1.49xs.

 

For FY2019, HSC calls for a 21.4% y/y increase in PBT to VND 9,849 billion – Our key assumptions are as follows;

 

  • We assume credit growth of 17% y/y to VND 249,795 billion.

 

  • We then assume deposit growth of 13% y/y to VND 271,683 billion.

 

  • We expect NIM to improve by 30 bps to 5.01%.

 

  • We also expect NII will increase to VND 17,149 billion (+19.4% y/y).

 

  • Further expect non-interest income will increase to VND 5,309 billion (+23.5% y/y).

 

  • We expect operating expenses to increase by 27.4% y/y to VND 10,711 billion.

 

  • Then assume that total provision expenses will come to VND 2,537 billion (-5% y/y).

 

  • We then assume a post write-off NPL ratio at 1.2% at end FY2018, after writing off VND 1,873 billion (equivalent to 0.75% of loan book).

 

With this we forecast that pretax profit will rise 21.4% to VND 9,211 billion generating an EPS of VND 3,222. And BVPS of VND 17,258 generating a forward P/B of 1.28xs.

 

MBB will continue to grow at an above average pace given a superior balance sheet and dynamic management team – MBB now has a 3% market share of the lending market. Their strong presence in the retail and SME market is backed by low cost deposits given the highest CASA in the sector of around 40%. The bank has always been disciplined in its lending practices and quick to write-off NPLs. Therefore, it has been able to enjoy strong prudential ratios enabling them to grow credit faster than most of the competition. And with provisioning in the parent bank unlikely to expand much and perhaps even decline, this growth is now carried down to the bottom line.

 

The two new businesses; MCredit and MBAL mark MBB’s entrance into the consumer finance and life insurance segments respectively. Despite not being an early mover, MBB has a loyal customer base and hence these new businesses are likely to grow with the parent bank itself. MBB is becoming a rounded universal bank with in house insurance and consumer finance offerings. This places them clearly in the first rank of joint stock commercial banks offering a full range of products to their customer platform.

 

Over the medium to long term, HSC forecasts that;

 

  • MBB will grow its loan book at CAGR of 17.3% over the next three years, with the parent bank loan book to grow around 16-17% and MCredit to grow at 40-50% annually.

 

  • While pure LDR will increase from 84% to 93%.

 

  • NIM will increase 94 bps to 5.26% over the same period.

 

  • NII will grow at a CAGR of 22.4% over the next three years.

 

  • While Non-NII streams will grow at a CAGR of 35.2% over the next three years.

 

  • MBB’s PBT to grow at CAGR of 32.9% in the next three years.

 

Investment thesis – Reiterate BUY. We have a fair value price at VND 34,200, which values the bank at a forward P/B of 2.3xs. While the aggregate P/B of the sector is now 2.1xs. MBB has produced an outstanding FY2017 and prospects for FY2018 still very strong. MBB is expanding its footprint into the retail market with a sharp increase in both retail loans and deposits from retail clients. This will result in higher costs but is being compensated to some extent by higher customer loan yields, especially in the consumer finance area. MBB’s fundamental are still amongst the best among local banks given its decent LDR, high CAR and good asset quality

 

  • Non-banks shares all closed higher, led by BVH and VND.

     

 

  • Consumer and retail names were mixed with gains for VNM and MWG while there were losses for KDF and BHN.

     

 

  • Tech stocks were all higher.

     

 

  • Manufacturing names were broadly higher, led by HSG and STK closing at the ceiling today.

     

 

  • Resource names were mixed to higher, led by PVD and GAS.

     

 

  • Real estate and construction stocks were mostly higher, except minor losses for VRE, VHM and TDH.

     

 

  • Agriproducts and aquaculture stocks were mixed to higher, led by GTN and VFG.

     

  • Pharmaceutical stocks were mixed to higher, led by TRA closing at the ceiling.

     

 

  • Utilities, transport and logistics stocks were broadly higher, led by NT2 and ACV. VSC closed at the ceiling.

     

 

Vietnamese stocks rally – The markets moved higher as investors ignored regional concerns over trade. BID was the biggest gainer in terms of index points while VCB; CTG and STB all moved higher. News that VCB will sell part of its MBB stake by auction soon may have triggered more buying interest in banks. Then insurance giant BVH moved higher as it often does when financial sector stocks are popping. GAS rose slightly as oil prices continue to rise. Steeler HSG made big gains and appears to be on a roll again after a difficult few months. Blue chips such as SAB and MWG also gained some ground. While construction name HBC had a good day. 

 

VHM and VRE fell after recent gains. While consumer names MSN and BHN also lost some ground. The proposed sale of MSN treasury shares has had a mixed impact on the share price of late. HDB & EIB were rarities amongst banks today and fell back. PNJ also lost out.

 

The four futures contracts rallied today with three out of the four showing a far bigger movement than we saw for the VN30 cash index. This closed the discount from the futures contracts to the cash index to a range between a 1.8-point discount to a 2.3-point premium. Although the longest dated contract still traded at a small discount to the short-dated contract. This is a far more optimistic view from the futures market than we have seen for some weeks. Suggesting that the near-term bias is very much to the upside. Although foreigners were net sellers today. 

 

Vietnamese equities rallied after early weakness drew in buyers. Despite early concerns over the latest round of U.S trade tariffs versus China, the market only fell a few points at the open. And by mid-morning it was clear that investors weren’t much concerned. In recent weeks, and as mentioned here before, the mood amongst investors over the impact of U.S. – Chinese trade tariffs on Vietnam’s macroeconomic outlook has changed. From a feeling of concern over a possible short to medium slowdown in trade towards a more optimistic view centred on the medium to long term possibility of a more accelerated shift of manufacturing capacity from China into Vietnam.

           

This shift is very significant as it immunizes the Vietnamese equity market to some extent from the negative effect of trade related announcement. In fact, today’s modest rally may be a sign the way that the market will react going forward. Now this view comes with a health warning. It assumes that (1) Vietnam’s trade numbers will continue to look strong; (2) that annualised CPI will continue to move just below 4% and that (3) the currency will remain fairly stable. Meanwhile a weaker dollar and higher oil prices is good news for most emerging markets.

 

And of course, if global equities were to correct sharply then it is hard to imagine that stocks here would escape. However, the relative safe haven argument for Vietnamese equities is gathering pace and furthermore some investors are even looking for possible beneficiaries of a trade war. Which suggests that the VN index could start to close in on the 200-day MA which currently rests at 1023.73 in coming days.      

 

Asian shares & major currencies – Asian shares rallied after early weakness even as Wall Street losses on Monday. As for currencies, the US$ (94.505) edged higher today after previous losses when measured against its trade weighted ICE index. Then the Euro (1.1686) traded a little higher; Pound Sterling (1.3129) declined; the Japanese Yen (111.93) was little changed while the Chinese Yuan gained a little ground today (6.8670).

 

Oil prices jump – Crude oil continued to move higher overnight and today with the active month WTI futures crude oil contract trading at US$ 69.91in late Asian trade. Support continues as concern that India; Japan and South Korea will reduce Iranian oil purchases dramatically between now and November.

 

The relentless rise in oil prices has continued as supply concerns continue to outweigh fears over an escalating trade war. It’s clear that South Korea, Japan and India have been reducing their exposure to Iranian oil at a fairly fast clip. And that they will step this up over the next 6 weeks ahead of the imposition of U.S. sanctions in early November. Meanwhile China has apparently given an understanding that they won’t increase their purchases of Iranian oil. This underpins our assumption that Iranian oil supplied to the markets will drop by around 1,000,000 barrels per day compared to May levels.

 

Meanwhile some media were reporting that the Saudis have become more comfortable with the idea that Brent crude will trade above US$ 80 for the time being and may even spike further as Iranian supply to the market continues to drop away. This is a change in stance and appears to concede that there is little that they can do to cap oil prices for the time being. The market is surely to view this as a signal that oil prices are going to head even higher in coming weeks.

 

In global macro and general news – President Trump duly announced the imposition of 10% tariffs on another US$ 200 billion worth of Chinese goods effective September 24th. The tariff rate will then increase to 25% by the end of 2018. Whilst threatening tariffs on another US$ 267 billion of goods should there be a retaliation. Needless to say, this puts the latest round of proposed trade talks between the two countries in great jeopardy. And we are now instead likely to see a retaliation from the Chinese side on September 24th or soon afterwards also.

 

Equity markets have had a day or two to anticipate this. And what is interesting is the differentiated response of regional markets. While Chinese; HK and South Korean equity markets have come under significant pressure this doesn’t tell the full story. Some other markets such as Vietnam, Malaysia and Thailand have performed relatively well as they are seen as being (1) structurally very sound in balance of payment terms; (2) showing decent growth without having high levels of debt and (3) even possible long term beneficiaries of the ongoing trade war in terms of FDI driven relocation of factories from China. 

 

 

 

 

 

 

 

HCMC – The VN index rose today as turnover expanded to VND 4,583.51 billion or US$ 197.18 million. The index gained 0.6% and closed at 993.49. 183 stocks up while 104 stocks down. And 9 stocks went to the ceiling while 6 stocks dropped to the floor. Foreigners accounted for 15.72% of the buying value and 17.76% of the selling value.

 

Foreign buying fell in actual terms and also in percentage terms. While foreign selling also rose further in actual terms and also in percentage terms. Foreigners turned net sellers to the tune of VND 93.66 billion worth of shares in HCMC. And we saw thirty one transactions in the put through market today.

 

Foreigners were active buyers of VHM; VNM; HPG; VJC and VIC. They also actively sold VHM; VNM; HPG; VJC and VRE. The put through market was more active today with one enormous; four super jumbo; five jumbo; two large and some medium sized & smaller deals accounting for 18.42% of total turnover.

 

We saw 1,964,119 shares of VHM; 3,230,000 shares of GEX; 2,623,435 shares of TIX; 2,830,100 shares of PDR and 483,500 shares of VNM going through. Foreigners were more active in the put through session in the VHM & VNM deals and then eight other smaller deals today in the market.

 

E1VFVN30 was up 0.32% today closing at VND 15,750.

 

Hanoi – The Hanoi market went up today while turnover came to VND 727.07 billion or US$ 31.28 million. The HN index was up 0.74% to close at 113.6. 87 stocks up while 67 stocks down. And 17 stocks went to the ceiling while 12 stocks dropped to the floor. Foreigners accounted for 3.2% of the buying value and 11.77% of the selling value.

 

Foreigners were net sellers to the tune of VND 62.30 billion worth of shares. And we saw twelve medium and small sized deals today during more active put through session in Hanoi accounting for 13.34% of total turnover.

 

We saw 8,081,832 shares of VIX; 1,150,300 shares of VC3 and 477,600 shares of SDA along with some smaller transactions in the put through market today.

 

 

 

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