HDB_PG Bank deal off the table?
30/10/2020 - 11:46
TP upside (downside) +1%
Close 29 Oct 2020
Price VND 23,600
12M Target VND 23,820
HDB reported 3Q20 PATMI of VND1.1 tn (-10% QoQ but +21% YoY) driven by high credit growth. In 9M20, HDB’s PATMI was VND3.5 tn (+28% YoY), fulfilling 77% of the bank’s full-year target and 65% of our forecast for 2020E.
Credit growth increased by 14% YTD, largely driven by SME loan growth of 19% YTD. HDB has asked the SBV for a higher credit growth allocation of about 25% for 2020E vs its initial 2020 target of 16%.
3Q20 net interest income was VND3.0 tn (+9% QoQ/+21% YoY).
The reported NIM was 5.0% in 3Q20 (+40bps YoY).
3Q20 net fee income was VND329 bn (+132% QoQ/+121% YoY).
Provisioning increased by +6% QoQ/+24% YoY to reach VND432 bn in 3Q20. In 9M20, total provision was up +28% YoY to reach VND1.1 tn.
LLR ratio was 64% (-8ppt QoQ/-17ppt YoY) in 3Q20. Management stated that the low LLR ratio was due to increased Category 3 NPL (+66% QoQ/+151% YoY) in 3Q20. However, HDB expects a large portion of its Cat.3 NPLs to become performing loans again in Nov 2020, which would boost the LLR ratio. HDB cleared all of its VAMC exposure in 3Q20. Overall, its reported 3Q20 NPL ratio was 1.83% (+28bps QoQ/+33bps YoY).
Capital and liquidity are strong. The bank’s total CAR (Basel II) was 10.9% vs the minimum requirement of 8.0%. Liquidity is solid demonstrated by its short-term capital for medium to long-term loans ratio of only 23.7%, well below the regulatory cap of 40.0%.
Management does not expect a bancassurance exclusivity deal to happen in 2020. HDB plans to pay a second stock dividend in 4Q20.
PGBank merger is in doubt. Management expressed their concern that the deal is not likely to happen in the future.
The current LLR ratio is relatively low, and we think that the bank should boost its reserve coverage to prepare for the probable increase in reported NPLs after Circular 01 expires.
Our model is under review. The stock trades at 1.3x 2020E P/B, which is above the sector median of 1.1x. Based on management’s comments in the meeting, we know believe that the chance of PGBank acquisition is low. Given our view that the deal represented a key risk for HDB, we came away from the meeting with a more positive outlook. Our forecasts and recommendation are under review.
For the complete report, please access here: HDB_3Q20_Express note
Analyst: Tanh Tran, firstname.lastname@example.org