HSC Daily Market Watch with a corporate action note on HDB (Outperform)

Ngày đăng October 2, 2018

Market commentary – The VN index decreased with turnover still below recent averages. Market breadth widened while we also see that 25 stocks went to the ceiling and 20 stocks fell to the floor. Foreigners were less active net buyers to a small degree. The put through market was more active with a large deal ROS & VNM and then a smaller deal in PAN seen going through.


Foreigners were active buyers of VNM; HPG and STB. And net sellers of VRE and DXG.


  • Bank shares were mixed with gains for STB and EIB while there were losses for CTG and TCB.


Corporate action – HDB looks to raise US$ 300 million worth of CBs to boost Tier 2 capital. Positive for long term development. Reiterate Outperform. Housing Development Bank (HDB; Outperform) has just released some official documents whereby they will seek shareholder’s approval for a plan to issue some US$ 300 million worth of Convertible Bonds.


Quick conclusion: Reiterate Outperform. Our Fair value for FY2018F is VND 40,000 per share (FY2018F P/B of 2.5xs) and our target for the next 12 months is VND 47,000 per share (for a FY2019F P/B of 2.5xs also). HSC has revised up our initial PBT forecast for FY2018F from VND 3,959 billion (+63.79% y/y) to VND 4,157 billion (+73.01% y/y) and also forecast 36.12% y/y growth in consolidated PBT to VND 5,654 billion for FY2019F. The bank is proposing to raise US$ 300 million in CBs in order to boost its CAR well ahead of the FY2020 deadline to introduce Basel 2 rules for the banking sector. The move is timely as many banks may come to the market next year looking for more funding. Given the likely merger with PGBank, HDB will be given a far higher credit growth target than any other bank this year. Enabling them to continue the strong growth that has characterized them in recent years.


The purpose of the proposed CB issuance is as follows; 


  1. To enhance CAR given the new rules governing CAR which will be calculated under Basel 2 from January 01st


  1. Acquire more medium & long-term funding to mitigate any maturity mismatch in their BS.


  1. Have sufficient funding for new business growth and network expansion.


  1. Other purposes.


The draft terms & conditions of the proposed CB issuance are as follows;


  1. Convertible bonds that can be converted to be common shares, no collateral assets and right issuance, cannot be traded or transferred to another investor.


  1. CB term                        : 5 years and 1 day, however, can be callable after 1 year


  1. Face value                    : $ 100,000 per bond


  1. Total bonds                   : maximum 3,000 bonds


  1. Total value                    : US$ 300 million


  1. Interest rate                  : Fixed rate for 5 years


  1. Interest payment           : Annually


  1. Conversion price           : Not disclosed, gives authority for the BOD to set but the conversion

price will not be lower than the BVPS in the most recent quarterly report.


  1. Conversion time            : at least 6 months from issuance date


  1. Potential buyers            : less than 100 foreign buyers (both individuals and institutions)


The main advisors for the issuance might be BNP and DB (same as for VJC’s CB). There is some speculation in the market that HDB may have found some potential buyers for the CBs already. And that the CBs issuance was considered a better choice to enhance CAR rather than offering to sell the treasury shares which were bought back as part of the M&A deal with PGB (amounting to 113.7 million treasury shares, equivalent to US$ 200 million at the current market price of HDB). There is currently no information about the coupon and convertible price however investors can use VJC CB as a good reference. This was some US$ 300 million over 5 years US$, with a coupon of less than 4% p.a, semi-annual interest payment, and a convertible price = market price + premium).


The FOL might be locked for conversion – HDB might lock 30% of new equity brought along from PGBank (90 million of shares) after the M&A to ensure that bank have enough FOL for any conversion in the future. The current FOL of HDB is 24.36 million of shares (2.48% of the total equity).


Boost CAR under Basel 1 by some 4% by year-end – Assuming that the issuance is successful, this would boost HDB’s total capital base for CAR calculation (post-merger) by some 38% to VND 25,810 billion (US$ 1.12 billion).


CB will be calculated as Tier 2 capital after issuance completed. Thus, total CAR will be boosted by 4%. And it will be transferred from Tier 2 to Tier 1 (chartered capital and share premium) when investors convert bonds into common shares (if any, earliest in FY2019F).


This would then lead to a CAR under Basel 1 of some 4.4% also (from 11.7% to 16.1%. Given the complicated calculations under Basel 2, it’s hard to estimate as this point what their CAR under the new rules would be. In any event, given that Tier 2 capital amounts at the end of FY2019F to just 2.6% of the total 14.2% CAR (Tier 1 CAR: 11.6%), HDB can still raise up to VND 8,000 billion in Tier 2 bonds to top up capital is they so require.   


Given the fact that the principle M&A plan between HDBank and PGBank was approved by SBV on September 10th, 2018, HSC has revised up our initial PBT forecast from VND 3,959 billion (+63.79% y/y) to VND 4,157 billion (+73.01% y/y). Our new forecast takes into account a contribution from PGBank who also reported PBT of VND 98 billion in the 1H FY2018. And from our expectation of higher credit growth for the post M&A bank. All % y/y growth here is based on pre-M&A result of HDBank only (not including PGBank). Our new assumption are as follows;


  1. We expect of 40% y/y growth in total customer loans growth in HDB parent (to VND 133 trillion) and 11.61% y/y growth in PGB customer loans (to VND 23 trillion). Thus, we expect that the total post M&A bank will see 34.78% y/y to VND 156 trillion. Then we keep our forecast of 15% y/y growth in HDSaison customer loans to VND 10.86 trillion.


  1. We also forecast of 23.02% y/y growth in customer deposits (to VND 176.54 trillion). Of which, HDB will see 25% y/y growth in customer deposits (to VND 150 trillion) and PGB will see 12.59% y/y growth (to VND 25.75 trillion). All customer deposits growth will come from HDBank parent.


  1. Thus, pure LDR of post M&A bank will be 88.92% vs. 84.9% in our initial forecast (and vs. 78.8% in FY2017).


  1. We now forecast NIMs will expand to 4.68% (14 bps higher r than our initial forecast of 4.54%) vs. 4.06% in FY2017. Of which, NIM for HDBank will improve to 2.96% vs. 2.43% in FY2017. And NIM for HD Saison will slightly drop to 28% in FY2018F when HD Saison completes most of their proposed new product launches.


  1. Thus, consolidated NII will grow by 53.97% y/y to VND 9,751 billion vs. initial forecast of 32.11% y/y (to VND 8,421 billion).


  1. We revise our initial forecast for total consolidated non-NII will from 34% y/y (to VND 1,544 billion) to VND 1,828 billion mainly thanks to nearly VND 300 billion of non-NII contribution from PGBank.


  1. We assume 36.12% y/y growth in total operating expenses to VND 5,572 billion vs. only 14.91% y/y growth in consolidated operating expenses to VND 4,703 billion. Of which, PGBank contributed VND 513 billion of expenses.


  1. Thus, consolidated CIR will improve to 48.1% in FY2018F vs. 54.4% in FY2017.


  1. We revise up our initial forecast of only 28.13% y/y growth in provision expenses (VND 1,302 billion) to VND 1,851 billion. Of which, PGBank will see VND 405 billion of provision expenses here.


  1. Thus, we expect consolidated PBT will be improved from VND 3,959 billion (+63.79% y/y) to VND 4,151 billion (+72.01% y/y).


  1. HDBank plans to issue ESOP (about 2% of the chartered capital at the end of FY2017). This plan was approved in the recent AGM however not yet executed in the 1H FY2018.


With that, according to our estimates the BVPS of the post M&A bank will be VND 13,599 (after treasury share buyback following the M&A plan). EPS will be VND 2,841. ROAE will be 19% and ROAA will be 1.49% (vs. 20% and 1.6% in initial forecast). At the current market price, forward P/B is 2.4xs and the P/E 11.2xs.


For FY2019F, HSC forecasts 36.12% y/y growth in consolidated PBT to VND 5,654 billion – Our main assumptions for the post – M&A bank are as follows;


  1. We forecast 20% y/y growth in customer loans to VND 201 trillion. In which, HDB will see 20% y/y growth to VND 188 trillion and HDSaison will see 20% y/y growth to VND 13.03 trillion.


  1. We forecast 17% y/y growth in customer deposits to VND 206 trillion. All of this comes from HDBank.


  1. Thus, pure LDR in HDB will rise to 91% vs. 89% in FY2018F.


  1. We forecast NIMs of 5.06% vs. 4.68% mainly thanks to higher NIMs in HDBank. Meanwhile, we forecast that NIMs in HDSaison will drop slightly to 27% vs. 28% in FY2018F.


  1. Thus, we forecast 26.42% y/y growth in NII to VND 12,328 billion. Of which, HDBank will see 31.68% y/y growth in NII to VND 8,561 billion and HDSaison will see 15.90% y/y growth to VND 3,767 billion.


  1. We forecast only 3% y/y growth in total non-NII to VND 1,883 billion. Both HDBank and HDSaison will see strong growth in net service income. However, HDBank will not have any big profit from bonds trading to book as seen in FY2018F (we assume in FY2019F a total of VND 305 billion in bond trading income vs. VND 620 billion in FY2018F).


  1. Operating expenses will increase moderately by 12.37% y/y to VND 6,261 billion. Of which, HDB will see 12% y/y growth to VND 3,890 billion and HDSaison will see 13% y/y to VND 2,371 billion.


  1. Thus, CIR will be 44% vs. 48% in FY2018F. For HDBank, CIR will be 38.24% vs. 42.83% in FY2018F and for HDSaison, CIR will be 55.70% vs. 57% in FY2018F.


  1. We forecast 24.04% y/y growth in provision expenses to VND 2,296 billion. HDBank will book VND 1,437 billion worth of provision expenses (+28.15% y/y) mainly due to still high VAMC bonds brought along from PGBank. Meanwhile HDSaison will book VND 859 billion worth of provision expenses (+17.73% y/y).


  1. Thus, consolidated PBT will be VND 5,654 billion (+ 36.01% y/y). HDB will contribute VND 4,847 billion (+37.88% y/y, which including of dividend from HDSaison) and HDSaison will contribute VND 1,026 billion (+22.02% y/y).


By that, BVPS of HDB will be VND 15,692 with EPS of VND 2,937. ROAE of 22.4% and ROAA of 1.75%. At the current market price, the FY2019F P/B is 2.1xs and P/E of 11xs.


Investment thesis – We keep our Outperform rating for HDBank. Our Fair value for FY2018F is VND 40,000 per share (FY2018F P/B of 2.5xs) and our target for the next 12 months is VND 47,000 per share (for a FY2019F P/B of 2.5xs also). Our valuation is based on the current weighted average P/B of banking sector at 2.1xs. We believe HDBank deserves a premium over the average due to its very promising future of retails segment meanwhile bank did the great job in asset quality control with very low NPLs and provisioning expenses.


The growth momentum is still very strong in HDBank, especially after the M&A deal with PGBank. Thanks to this M&A deal, HDBank can get a far higher credit growth limit from SBV for post M&A bank beside the huge benefit from the wide retail franchise network of PLX group. HDSaison can slow down a little bit however still see moderate growth in profit and contribute from 20-30% of total group profit. Both parent and subsidiary follow very conservative risk appetite that guarantee a sustainable growth in the future. We note that HDBank is only investment grade listed JSCB with available FOL now.


  • Non-banks shares were mostly lower, except a minor gain for HCM.


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


  • Tech stocks were mixed with a gain for YEG while FPT had a minor loss.


  • Manufacturing names were mostly higher, led by NKG and TCM. TMT closed at the ceiling today.


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


  • Real estate and construction stocks were mixed to lower, led by VRE, VHM and DXG.


  • Agriproducts and aquaculture stocks were mostly lower, led by GTN and VHC.


  • Pharmaceutical stocks were mixed to higher, led by IMP and TRA.


  • Utilities, transport and logistics stocks were mixed with gains for VNS and VSC while there were losses for airline stocks.



Vietnamese stocks slip in late trading The markets lost ground late on after a robust start to the day. VHM was the biggest loser in terms of index points followed by VRE. Fellow real estate play NVL also lost some ground. Banks were mostly weaker led down by CTG; VCB; TCB; BID and VPB.  Consumer name VNM also lost some ground.


On the other hand, GAS jumped as did PLX & PVD as oil prices continued to move higher. Amongst bank stocks, STB & EIB moved higher as did HDB on a proposed CB funding. VIC edged higher as did fellow developer KDH. Amongst consumer names BHN and MSN both gained ground.  


The four futures contracts fell back today but by less than the VN30 cash index showing a discount of 5.4-5.5 to the cash index. While the long-dated contract trading at a small premium to the short-dated contract. This is a fairly decent outcome and suggests that sentiment in the futures market is still slightly biased to the upside in our opinion. We also note that foreigners were net buyers again today.


The VN index took a shot at the 200-day MA line with a promising start but fell just short. And then came under some selling pressure in the last hour of trading. We have thus lost some momentum and finally closed in negative territory. Some investors have had their fingers on the trigger at these levels given the importance of a break above the 200-day MA mark. However, as we have seen previously when the market approached the 50-day MA and then the 100-day MA, it took a few attempts to make the decisive move.


Therefore, the market’s behavior in the next few days will be important. If we hold our ground at current levels tomorrow, or recover, then we can build up momentum for another go at the 200-day MA level fairly quickly.


We see three key factors keeping the current rally going; (1) net foreign buying of the market as a whole; (2) stable or falling US$ versus its main trading partners and (3) a rising or stable oil price. Foreigners were net buyers of a total of VND 474 billion in September. Having been net sellers for the previous two months. Then the ICE index for the US dollar declined by 0.01% last month. While WTI oil prices rose by 5.21% during the month.


Now we don’t need all three indicators to move in the right direction every trading day. However, the overall trend of all three needs to be in a favorable direction, otherwise the temptation for investors to take profits grows. And as long as that trend continues into October the market should continue to move higher. However, if one or two of these factors begins to change direction, then the overall market will eventually react.


Asian shares & major currencies – Asian shares were mostly higher again today as Wall Street made some gains on Monday. As for currencies, the US$ (95.060) fell back today when measured against its trade weighted ICE index. Then the Euro (1.1618) traded a little bit higher; Pound Sterling (1.3047) was also a little stronger; the Japanese Yen (113.97) lost more ground while the Chinese Yuan last closed at (6.8688).


Oil prices continue to move higher – Crude oil traded higher today with the active month WTI futures crude oil contract trading at US$ 73.47 in late Asian trade. Concern over supply constraints in Q4 still dominates sentiment. 

Iran’s foreign minister, Mohammad Javad Zarif said over the weekend that Iran was close to reaching a deal with European nations to sell oil in defiance of U.S. sanctions. However so far, the Europeans have been silent on the matter. In any event, agreement aside, it’s up to European oil companies to decide if they want to continue to buy Iranian oil. And given practical difficulties like getting an insurance company to underwrite the cargo this seems to be quite hard to do in practice.

 The narrative then for oil hasn’t changed much over the weekend. With most observers expecting prices to spike in coming weeks before falling back again later on given the expectation that additional spply coming on stream in Q1 FY2019 will lead to a new demand/ supply equilibrium sometime in the 1H of next year. Amidst concerns that demand growth may slow as leading economies such as China and India experience slowing demand for manufacturing industries. 

In global macro and general news – The U.S. and Canada have reached agreement on a revised trade deal as part of attempts to revamp the North American Free Trade Agreement and keep it as a trilateral bloc following a previous agreement with Mexico. The news came just ahead of the Sunday midnight deadline which kept them working throughout the weekend. We understand the deal will improve American access to 3.5% Canada’s US$ 16 billion dairy market. Whilst retaining a dispute resolution mechanism favored by Canada. Then a side letter will largely shield Canada from the risk of possible U.S. auto tariffs up to 2.6 million passenger vehicles with pickup trucks entirely exempt. 

This means that the U.S. is likely to pursue similar type arrangements with the EU; Japan and South Korea. Seeking concessions in return for a promise not to impose tariffs on car imports from those countries up to a certain quota. However, it tells us little how any future negotiations with the Chinese may be approached as the nature of that dispute is very different. 

The Chinese official manufacturing purchasing managers index (PMI) decelerated to 50.8 in September versus 51.3 in August. New export orders in the official PMI report fell to 48 marking the fourth month of contraction and the lowest level seen since 2016. Meanwhile the private sector Caixin reading decelerated to 50 vs. a reading of 50.6 in the previous month. All of this shows that the manufacturing sector is slowing driven by lower export demands. Which of course can be directly traced to the U.S. tariffs. The only good news was the fact that the official non-manufacturing PMI accelerated to 54.9 as the service sector continues to do well.


HCMC – The VN index fell today as turnover narrowed to VND 5,877.59 billion or US$ 252.85 million. The index lost 0.42% and closed at 1012.88. 122 stocks up while 178 stocks down. And 11 stocks went to the ceiling while 9 stocks dropped to the floor. Foreigners accounted for 13.71% of the buying value and 12.19% of the selling value.


Foreign buying fell in actual terms and also in percentage terms. While foreign selling also fell further in actual terms and also in percentage terms. Foreigners turned net buyers to the tune of VND 88.85 billion worth of shares in HCMC. And we saw twenty nine transactions in the put through market today.


Foreigners were active buyers of VNM; HPG; STB; DXG and VRE. They also actively sold VNM; MSN; VIC; VRE and DXG. The put through market was more active today with four enormous; three jumbo; six large and some medium sized & smaller deals accounting for 15.59% of total turnover.

We saw 6,680,000 shares of ROS; 1,216,160 shares of VNM; 2,679,810 shares of PAN; 4,751,210 shares of CMG and 522,512 shares of NVL going through. Foreigners were less active in the put through session in the VNM & DXG deals and then five other smaller deals today in the market.

E1VFVN30 was up 0.49% today closing at VND 16,450.

Hanoi – The Hanoi market went down today while turnover came to VND 788.74 billion or US$ 33.93 million. The HN index was down 0.65% to close at 115.52. 74 stocks up while 94 stocks down. And 14 stocks went to the ceiling while 11 stocks dropped to the floor. Foreigners accounted for 0.93% of the buying value and 2.68% of the selling value.

Foreigners were net sellers to the tune of VND 13.80 billion worth of shares. And we saw fifteen medium and small sized deals today during more active put through session in Hanoi accounting for 3.63% of total turnover.

We saw 1,337,900 shares of VC3; 267,389 shares of SHB and 30,000 shares of PGS along with some smaller transactions in the put through market today.


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