HDB_Erratum

Event

Our 26 September initiation note applied the wrong share count to our valuation. This note corrects that error, and our 12-month target increases by 10.5% from the previous VND 28,016 to VND30,970.

Our Take

Because we are analyzing the post-merger HDB, we correctly factored in the additional 186 million shares that HDB will issue for the PG Bank acquisition in yesterday’s report. However, we also factored in the 30% stock dividend in 2019; which was incorrect.

The share count for the post-merger HDB is 1,167 million shares and we have applied this in our corrected valuation. Our valuation changes from the original VND28,016 to VND 30,970 (offering upside of 16% based on close price on Sep 27th). This new target price implies P/BV multiples of 2.1x for 2019E and 1.7x for 2020E.

Residual Income Model

Based on the residual income approach, we estimate HDB’s post-merger fair value at VND 32,383 per share (vs. the pre-merger valuation of VND33,545), implying a 21.5% premium to the current share price (VND 26,650 at Sep 27, 2019) and a 2019E P/BV multiple of 2.2x. Please see Page 2 for fair value sensitivities to ROE and cost of equity using the corrected share count number.

A better entry opportunity may emerge following the deal’s consummation, and we reiterate our overall cautious short-term view on the stock. From a practical perspective, HDB’s shares may be pressured after the merger given that some of PG Bank’s minority shareholders are likely to monetize this asset once they have access to the liquidity of HDB’s shares. As our above-consensus earnings forecast indicate, we are not particularly bearish on HDB. But we would await clarity on the acquisition before revisiting our cautious short-term view.

For the complete note, please access here: HDB_ERRATUM_Sep 2019

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