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BID_Hana deal remains the key catalyst

03/05/2019 - 08:36


Current price (05-02-2019): VND 34,500

Target price: VND 38,713

Upside:  12.2%

Summary: Capital raising was the key topic of BID’s April 26 AGM. The deal with KEB Hana Bank remains on the card, but its exact timing remains unclear. We believe that the deal will go through this year given the urgency to comply with the Basel II protocols. 1Q19 PAT of VND2trn (+17.4% QoQ / +0.2% YoY achieved 21% of our full year earnings forecast. We reiterate our Buy rating, which is based on the assumption that the deal will go through in 2019.

Net interest income (-8.5% QoQ / -6.8% YoY) in 1Q19. Loan growth jumped by 16.6% YoY while deposits increased by only 11.5% YoY. Deposit interest expense increased (+0.03ppt QoQ/+0.19 ppt YoY) while asset yields fell sequentially (-0.06 ppt QoQ/+0.08ppt YoY), which pushed down NIM. We believe that wholesale funding cost will decline after the capital issuance given the lower balance sheet risk.

Fee income (-13.2% QoQ but +17.6% YoY). The details are unclear but the YoY number was certainly impressive.

Cost to adjusted revenues declined by 13.9ppt QoQ but increased by 5.7ppt YoY to reach 31.8% in 1Q19A. Our adjusted revenue number does not include “other income” given the distorting influence of loan loss recoveries, which are not stable revenues.

Provision cost (+14.5% QoQ / -13.7% YoY) resulted in a slight PBT increase of 1.4% YoY despite the YoY declines in net interest income (-6.8%) and non-interest income (-40.8% YoY). However, provisioning costs should rise later in the year as BID cleans up its remaining VAMC exposure of VND 6,462 bn in 2019E. However, that should clear the decks for reduced provisioning starting in 2020E.

KEB-Hana deal is still on the card. Regulatory procedures and price considerations may have put the deal on hold temporarily. However, we believe that the deal will go through this year given that it is crucial to increasing BID’s CAR to meet the Basel II standards.

We reiterate our BUY rating as outlined in our initiation report “Time to make a BID”.

For the complete report, please access here: BID_AGM Note_02 05 19

Analyst: Tanh Tran, tanh.tran@yuanta.com.vn