BID VN_1H19: KEB Hana investment bolsters earnings confidence despite lower-than-expected 1H19 PBT results

BUY

Current price (07-30-2019): VND 35,000

Target price: VND 38,713

Upside:  10.6%

Our view: The decline in PBT in the 1H19 was mainly due to increasing provision, which partly in line with our forecast to clear VAMC bonds, and loss from stock trading and investment (which is non-core business). We believe that KEB Hana investment will strengthen capital solvency and drive higher credit growth room, which will bolster earnings from the 2H19 onwards. We maintain our Buy Rating.

BID reported net interest income of VND 9.1 tn in 2Q19 (+6.9% QoQ and +10.1% YoY) and VND17.7 tn in 1H19 (+1.2% YoY), fulfilling 40.4% of our annual forecast. Loan growth reached 7.7% YTD, completing 50.2% of our forecast. We believe that the increased capital from KEB Hana Bank will drive higher credit growth. We forecast loan growth of 15.4% in 2019E. We also believe the long-term funding costs should decline due to the reduced balance sheet leverage, which would boost NIM as a result.

Fee income of VND1.1 tn in 2Q19 (+24.6% QoQ / +11.9% YoY) and VND2.0 tn in 1H19 (+14.4% YoY) fulfilled 47% of our forecast.  The Bank also reported a total net other non-interest income of VND 673 bn (-45% YoY) mainly due to the loss of VND175 bn in stock trading and investment compared to a profit of VND664 bn in 1H18, which dragged down the profit in the first half of 2019. Other income was VND 1.1 tn in 2Q19 (-12.1% QoQ, but +11.4% YoY), and VND 2.4 tn in 1H19 (+48.9% YoY). The detail was unclear, but we believe that income mostly came from NPL recoveries.

Provision cost was up significantly to reach VND5.5 tn in 2Q19 (+6.5% QoQ / +37.7% YoY) and  VND10.7 tn in 1H19 (+6.8% YoY). We noticed that NPL ratio increased from 1.90% in 2018A to 1.98% in 2Q19, especially category 5 NPL jumped substantially 46% YTD. The increased provision cost was also in line with our expectation that BID will clear 100% of its VAMC exposure in 2019.

BID reported PBT of VND 2.3 tn in 2Q19 (-10.7% QoQ / -9.4% YoY) and VND 4.8 tn in 1H19 (-4.0% YoY) completing 45% of the Bank’s target and 38% of our forecast.

Our view: BID is currently trading at 1.8x 2019E P/BV. We maintain our Buy Rating as we believe the KEB Hana investment will help bolster earnings from 2H19 onwards.  Please see our initiation for the complete report on BID.

For the complete report, please access here: BID_KEB Hana Investment bolsters earnings confidence despite lower-than-expected 1H19 results

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