BID_Downgrade to SELL

Downgrade to SELL

TP upside (downside) -25%
Close 14 Feb 2020
Price                        VND 50,000
12M Target            VND 37,300
Previous Target    VND 38,700
Change                   -4%

What’s new?

• Loan growth forecast reduced to 14% for 2020E and 2021E vs. our previous 16% forecasts.
• Lending rate to fall to support enterprises dealing with the effects of Covid-19.
• We cut our EPS forecasts by 23% for 2020E and 21% for 2021E.

Our view

• We downgrade BID to SELL from the previous HOLD-Outperform.
• Near-term headwinds given the macro uncertainties created by the virus.
• BID is overvalued at 2.4x 2020E P/BV vs. the peer median 1.2x, especially given its 2020E adjusted ROE of just 11% vs. the sector median of 21%.

Enough is enough

Cutting our loan growth assumptions. The KEB-Hana investment has improved BID’s balance sheet, which should support credit growth going forward. However, we cut our loan growth forecasts to 14% for each the next two years (vs our prior 16% YoY forecasts) in line with the SBV’s target loan growth for the whole sector for this year.

The increased capital reduced the bank’s asset/equity leverage from 25x to 22x. It should also help reduce BID’s long-term funding costs. We expect NIM to improve from 2.83% in 2019P to 2.96% (+13bps YoY) in 2020E and 3.02% (+6bps YoY) in 2021E.

However, our revised NIMs are lower than our previous forecast (see page 2) partly due to the effects of the Covid-19 outbreak. We expect that banks including BID will cut lending rates to support enterprises as they handle the impact of the disease on their businesses.

Therefore, we revise down our 2020E PBT forecast to VND13.1 tn, down -29% vs. the previous forecast but still up +21% YoY.

Overvalued…Downgrade to SELL. We are still positive on the earnings prospects for 2020-21E, but the stock has returned 54% since our initiation in March 2019 (see Time to Make a BID). The valuations are stretched and in our view are not justified.

The current price multiple of 2.4x 2020E P/BV is expensive vs our 2020E ROE forecast of 11%. This makes BID a Gordon Growth outlier relative to the sector median P/BV of 1.2x and sector median ROE of 22%. Along with our earnings revisions, we cut our target price by 4% to VND 37,300 per share, implying a still-generous 2020E P/BV of 1.8x. With 25% downside to our target price, we downgrade our recommendation to SELL from the previous HOLD-Outperform.

For the complete report, please access here: BID_Recommendation Update_02.2020

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