Equity Analysis /
Vietnam

Military Commercial: 1Q2019 results – associates drive earnings growth

    Anh Nguyen
    Rong Viet
    2 May 2019
    Published by

    Strong credit expansion

    In 1Q2019, consolidated total credit grew +8.7% yoy, with customer lending reaching VND229,168bn (+6.7% yoy) and corporate bonds increasing to VND13,435bn (+61.6% yoy). The credit growth at the parent bank was +6.3% YTD, while according to our estimation, that of MCredit reached approximately +23.2% YTD. Given 13% and 37% credit growth quotas for the parent bank and MCredit respectively, they have approximately 6.7% and 13.8% remaining room for credit expansion in the last three quarters of 2019.

    Loans to individuals saw a strong expansion (+8% YTD). The proportion of retail lending in total portfolio has increased to 38.3% by 1Q2019 from 37.7% at the end of 2018 and 33.5% in 1Q2018.

    We also see that NIM (trailing 12 months) continued to expand from 4.6% in 1Q2018 to 4.8% in 1Q2019, mainly due to the improvement in yields on earning assets while funding costs remain unchanged.

    Associates are driving overall income and earnings growth

    With faster credit expansion, MCredit is driving consolidated net interest income growth to 25.6% yoy, higher than separate growth (15.0% yoy). MBB’s associates are also driving the growth of service income and operating income as a whole.

    In 1Q2019, separate service income growth reached 58.0% yoy, lower than consolidated growth (140.6% yoy). This was driven by net income from insurance (mainly contributed by MIC and MB Ageas Life) which soared 11 times yoy since 1Q2018. Accordingly, the proportion of service income in total TOI expanded from 7.4% in 1Q2018 to 13.9% in 1Q2019. 

    Business plan 2019

    MBB set a relatively high consolidated PBT target of VND 9,560 bn (+23% yoy) and separate PBT at 8,345bn (+19% yoy). This means that the bank is expecting its subsidiaries and associates to grow at a higher rate than the parent bank and will contribute more to total earnings.

    Initially MBB expected to expand lending of MCredit by 80%. However, due to a lower credit growth quota given by SBV (37%), MBB has to reduce its PBT growth target for MCredit to 24%. Similar to VPB, the bank believes that the draft of new regulations on consumer finance companies’ direct disbursement to customers should be revised before going into effect.

    The bank also expects that MB Ageas Life will reach breakeven point this year (versus a net loss of - VND 319bn in 2018). Along with the PBT growth target of more than 180% of MIC, the bank aims to raise the contribution of all associates to consolidated earnings from 9% in 2018 to 15% in 2019.

    Foreign ownership limit could rise

    After years of keeping its foreign ownership limit at 20% (maximum 30% by law), we believe MBB may unlock the remaining 10% foreign room for the private placement as planned. Management believes overseas investors will pay a higher price than locals (triple or quadruple face value).

    Buy with a TP of VND30,500

    MBB is currently trading at VND 21,900, equivalent to an attractive PBR 2019f of 1.2x. We have a BUY rating on the stock with a target price of VND 30,500, about 39% higher than the current market price.