HDB_A Brighter Outlook

BUY

TP upside (downside) +17%
Close 17 Nov 2020
Price                               VND 25,700
12M Target                   VND 30,095
Previous Target           VND 23,820
% change                      +26%

What’s new?

• The deal with PG Bank now appears to be off the table.
• Asset quality at HD Saison is holding up surprisingly well.
• We now forecast loan growth to reach 16% for 2020E-21E
• We reckon the maximum EPS dilution from the CB is c.8.5%.

Our view

• Upgrade to BUY. The stock trades at 1.1x 2021E P/B with 2021E ROE of 18%.
• Management’s statement that the PG Bank acquisition is likely off the table removes what we have seen as a key investment risk.
• Credit growth should continue to outperform peers given HDB’s low LDR, SBV easing, and high capital demand at yearend.
• Bancassurance is another positive driver.

A brighter outlook

The PG Bank acquisition is likely to be off the table. As outlined in our initiation, our core investment concern for HDB has been the risks related to the prospective PG Bank acquisition. But based on recent developments highlighted in the 3Q20 results meeting, we now believe the PG Bank acquisition is unlikely to occur. The removal of this overhang leaves us with a positive outlook on HDB.

We expect higher-than-sector loan growth in 4Q20 and 2021E given the bank’s relatively low LDR. Eased rates and high seasonal capital demand should help to boost loan growth in 4Q20, and overall conditions for credit growth should recover substantially in 2021. Thus, we forecast loan growth to reach 16.3% in 2020E and 15.6% in 2021E.

Asset quality is holding up surprisingly well at HD Saison, where NPL ratio was 6.77% in 3Q20. In any event, HDB’s loan exposure to its unsecured consumer subsidiary represents just 29% of shareholders’ equity, well below VPB’s exposure to FE Credit (130% of VPB’s shareholders’ equity).

Bullish on banca. We forecast net fee income to reach VND941 bn in 2020E (+50% YoY) and VND1.4 tn in 2021E (+45% YoY), largely driven by bancassurance, which could also provide a substantial up-front fee.

Yuanta vs consensus. Our earnings forecasts are in line with Bloomberg consensus, but we believe that our loan growth and fee income forecasts are higher than those of the Street.

Upgrade to BUY. After extracting the PG Bank consolidation from our model, we increase our forecasts for 2020E forecast by 4% and 2021E EPS by 10%. The combination of higher profitability and lower risk than in our previous model results in a 26% increase in our target price, which implies a reasonable 1.3x FY2021E P/B vs. forecast ROE of 18%.

For the complete report, please access here: HDB_Company Update_Nov 2020

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