BID_KEB Hana to purchase a 15% stake

BUY

Current price (07-22-2019): VND 35,750

Target price: VND 38,713

Upside:  8.3%

BID has announced a 15% stake sale to KEB Hana Bank for US$875m. The capital injection is the key catalyst that we have been waiting for. It should allow BID to meet Basel 2 requirements and grow its business at a time when many competitors face capital constraints. We also expect the stronger balance sheet to result in lower funding costs and improved NIM. We reiterate our Buy rating on BID.

BID has officially announced a US$875 mn stake sale to KEB Hana Bank. BID will issue 603.3 mn shares at VND33,640 per share. This figure is 5% higher than our VND32,000 assumption.

We estimate the deal will boost BID’s CAR to 12.7% under Basel I or 10.7% under Basel II. Again, these numbers are slightly higher than the assumptions in our model (which assumed the deal would be done at mid-year) due to the higher-than-expected price per share.

We expect the increased capital to drive higher credit growth. We forecast loan growth of 15.4% in 2019E and c.16% in both 2020E and 2021E, higher than BID’s capital-constrained peers. We also believe that long-term funding costs should decline due to the reduced balance sheet leverage.

Short-term downside risk but long-term operational upside. BID is currently trading at 6% higher than the issuance price, so potential short-term downside for the shares is possible. However, we are highly positive on the deal in the longer-term, as it will alleviate BID’s capital constraints, allow for business expansion, improve its credit rating, and build investor confidence. We thus see the deal as a key operational catalyst. This is critical given that many other banks are struggling to raise capital to meet Basel II requirements while contending with FOL limitations. We reiterate our Buy rating on BID.

For the complete report, please access here: BID_KEB Hana to purchase a 15% stake

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