VCB VN_Fees boosted by bancassurance deal

Buy

TP upside (downside) +12%

Close 30 Sep 2019

Price               VND 82,100

12M Target        VND 92,035

Previous Target    VND 75,270

Change            +22%

Fees boosted by bancassurance deal

Deal benefits: 1) A US$400m upfront fee (we assume in 2020). 2) Increased fees from bancassurance sales in the years ahead now that the VCB-Cardif tie-up is history. 3) Improved ROE given the capital-lite nature of bancassurance sales. Please see our earnings revision table in the left margin for the earnings impact. Also, we present the detailed post-deal / pre-deal income statement comparisons on Page 3.

Fee income and earnings upgrades. We had anticipated some sort of deal occurring but did not factor it in to our previous earnings. Based on the details released so far, we have adjusted up our 2020E net fee income by 160% from our original forecast of VND5.8 trn to VND15.0 trn in 2020E. We expect net fee income (boosted by a rejuvenated bancassurance contribution) to account for 22% of average total revenue in 2020E-23E. Please see the Income Statement on page 3 for detail.

Wrapping up the VCB-Cardif biz. As part of the deal, FWD will purchase VCB-Cardif, the bank’s laggard insurance JV that has been a drag on signing an exclusivity deal. VCB’s 45% ownership in this JV is booked on the balance sheet at VND123 bn. The purchase price has not been disclosed, but there could also be a small one-off gain here if Cardif insists on a premium to book value (but we have not factored this in).

We upgrade our recommendation to BUY from the previous HOLD-Outperform and raise our target price by 22% to VND92,035, implying 4.2x 2019E and 3.5x 2020E P/BV. Please see the valuation summary and Residual valuation sensitivities tables on page 2.

For details on our view on VCB, please see our June 6 initiation note titled Rock the CASA. VCB also tops the quality list among the 17 publically traded Vietnamese banks, as detailed in our latest CAMEL analysis update of August 14.

For the full report, please access here: VCB_Boosted by banca_01.10.2019

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