VPB_Regulatory fears are overdone

BUY

TP upside (downside) +21%
Close 14 Jan 2020
Price                       VND 21,150
12M Target        VND 25,530

What’s new?

• Pessimism over consumer finance regulation is overdone.
• FE Credit to drive ROE amid 4-year shift away from cash loans.
• Provisioning to fall from 2020E on cleaned up VAMC exposure.
• 6.8% FOL share release awaits, possibly in 2020E.

Our view

• We expect this CIR downtrend to continue given its digital transformation focus.
• We assume that provisioning cost for VAMC bonds will no longer exist, which will boost PBT from 2020E.
• The plan to sell the remaining FOL shares and the inclusion to VN-Diamond index are possible short-term catalysts.

Regulatory fears are overdone

Cheap valuation: A 20% discount to peers. VPB trades at 1.0x 2020E P/BV despite 2020E ROE of 22% (higher than the peer median of 19%). This reflects an undue level of pessimism, in our view.

Fear over consumer finance regulation is a key reason… The mandatory 30% cap on cash loans sounds scary given FE Credit’s c.70% cash loan ratio. However, this requirement is not immediate: consumer finance firms have until 2024 to reach the 30% cap. Assuming FEC’s cash loan ratio is 70% in 2021E, 60% in 2022E, 50% in 2023E, and 30% in 2024E, our intrinsic value estimate is still 21% higher than the market price.

…and full-FOL status could be another. Full-FOL stocks have generally underperformed open-FOL stocks. We are reluctant to pound the table on full-FOL names given the premium and settlement issues, but VPB’s current FOL premium of 7-9% appears reasonable to us. VPB plans to issue the remaining 260 mn FOL shares via private placement in 2020E, but liquidity may not improve much pending the adoption of NVDRs.

Digital transformation drives cost efficiencies. VPB’s consolidated adjusted CIR of 37.8% in 4Q18-3Q19 is the third lowest in the sector, which is all the more impressive given its retail focus. We expect this trend to continue due to the bank’s digital transformation.

VN-Diamond index inclusion could be a short term catalyst for the stock. We reckon that US$100m in inflows into the VN-Diamond ETF would represent about 10 days’ trading in VPB’s shares.

We initiate coverage with BUY. We believe that VPB is mispriced and deserves a premium over its peers vs the current discount. Our target price of VND25,530 implies 1.3x 2020E P/BV.

For the complete report, please access here: VPB_Initiation_Jan_2020_Final

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