VCB_TP 66,616 VND_Upside 11%_Selling strategic capital_BSC Company Update

We recommend TRACKING with VCB shares with a target price of VND 66,616/ share, upside 11% by P/B method = 3.4x with the expectation of selling capital to strategic shareholders in 2019.

 

We forecast that VCB will record TOI and PBT in 2019 to reach VND 44,988 billion (+ 14.5% yoy) and VND 20,654 billion (+ 12.9% yoy). If excluding extraordinary income from divestment, PBT of VCB increased by 24.6% yoy. This forecast is based on the assumption that (1) credit growth in 2019 will reach 14%, equivalent to the target set by the SBV, (2) lending + 15.19% yoy, mobilizing + 11.3% yoy, mobilizing/deposits reached 81.7%, lower than the SBV ceiling, (3) NIM improved to 3% due to continued loan structure and conversion of retail lending, (3) NPL = 0.97% , the ratio of bad debt = 165%, (4) off-balance sheet bad debt recovery reached VND 3,500 billion.

 

High valuation, P / B = 3.4x (industry average = 1.5x).

 

2018 business results. In 2018, VCB recorded TOI and PBT at VND 39,288 billion (+ 33.61% yoy) and VND 18,300 billion (+ 61.4% yoy). 

Net interest income + 29.5% yoy due to (1) credit growth in 2018 reached 14.78%, (2) NIM improved to 2.77%, (3) high CASA rate, 28.3% mobilization structure.

Non-interest income + 29.5% yoy and currently accounts for 27.7% TOI, In our opinion, the sustainable profit structure of banks (about 70% of profit comes from net interest income). 

Asset quality continues to improve. NPL = 0.97% (industry average = 1.65%), bad debt coverage ratio = 165% is the highest in the whole industry. 

Continue to pursue strategic sales with GIC in 2019. In early 2019, VCB sold 3% (average price of about 58,000 VND/share) and is expected to continue selling 7% to GIC strategic partner in 2019