MBB_High margin growth engine and attractive valuation
27/06/2019 - 08:24
Current price (06-26-2019): VND 20,850
Target price: VND 29,880
- High CASA ratio (34% as of 1Q19 vs. peers’ median of 14%) = structurally high NIM.
- Higher credit growth vs. peers due to early Basel II compliance.
- Banca subsidiary to provide a potential earnings boost.
- Attractive valuation: 1.1x 2019E P/BV on 21% ROE.
MBB’s sector-high CASA deposit ratio is a structural advantage over its peers that allows it to post high NIMs without taking on undue credit risk. A potential stake sale to foreign investors in 2H19E should further boost solvency and reduce wholesale funding costs. We also expect higher loan growth than the sector average given MBB’s early Basel II compliance. Even factoring in an FOL premium, we think the valuation is attractive. The stock currently trades 1.1x 2019E P/BV with 21% expected ROE vs. the sector median of 1.3x P/BV and 18% ROE. We thus initiate with a Buy rating.
CASA franchise is the key competitive advantage. MBB boasts the sector’s highest CASA ratio at 34% vs. the peer median 14%. This drives its low funding costs of 3.48% vs. the sector median 5.15% in 2018A. We expect NIM to increase 37bps YoY to reach 5.02% in 2019E as the lending focus shifts to retail and SMEs.
Higher credit quota, maybe, due to early Basel II compliance. We expect the SBV to allocate a higher credit growth quota to MBB than the sector average of 14%, at least for 2019. We expect this favorable treatment to apply only to the first few banks that comply with Basel II, but once (if?) Basel II becomes more commonplace among banks any such advantage is not likely to persist. We forecast loan growth of 16.3% in 2019E and 14.5% in 2020E.
Valuation is dragged by full FOL. In other markets, commercial banks with superior funding franchises typically generate higher ROEs than peers and tend to trade at a premium to peers. However, MBB trades at a discount despite generating higher profitability than the sector. We view this anomaly as largely due to the stock’s full-FOL status which reduces its attractiveness for domestic investors. Our target price implies 1.6x 2019E P/BV – a reasonable level given its superior growth/profitability outlook, and one that offers upside even after accounting for the 20%-25% FOL premium.
For the complete report, please download here: MBB_Initiation_Jun 2019
Analyst: Tanh Tran, firstname.lastname@example.org