Equity Analysis /
Vietnam

Ho Chi Minh City Development Bank: H1 20 – Growth predominantly led by NII; asset quality remains manageable

  • For 2020, we expect net interest income growth to remain strong with positive momentum in both credit and NIM

  • Service income will remain modest at least until the exclusive bancassurance agreement is finalised

  • Our TP of VND31,000 is equivalent to a potential upside of 17%; this translates to an Accumulate recommendation

Rong Viet
11 August 2020
Published byRong Viet

For 2020, we expect net interest income growth to remain strong with positive momentum in both credit and NIM, but service income will remain modest at least until the exclusive bancassurance agreement is finalised.

We also expect that the bank will be able to handle the coronavirus impact on asset quality in the subsequent quarters. Our target price on the latest results update is VND31,000, equivalent to a potential upside of 17% versus current market price. This translates to an Accumulate recommendation.

The parent bank’s H1 20 PBT increased by 36.0% yoy to VND2,359bn (US$102mn), while HD Saison’s PBT was up by 17.6% yoy to VND559bn (US$24.3mn). Overall, HDB posted solid H1 20 consolidated results with PBT of VND2.9tn (US$126mn; +31.5% yoy). TOI expanded by 22.7% yoy (led by NII expansion of 30.1% yoy) while closely controlled opex (+12.7% YoY) and provision costs (+31.6%) enabled such strong earnings growth.

HDB maintained desirable credit growth at both the parent bank and HD Saison

H1 20 consolidated credit growth was 10.3% YTD, supported by a growth of +9.6% YTD in customer loan and +26% YTD in corporate bonds. The parent bank’s lending expansion was a bit faster at 9.8% YTD. This was led by SME (+16.8% YTD) and retail loans (+1.6% YTD). The former was pushed by supply chain finance and lending to solar energy farms. As of June 2020, the SME loan book consisted of service and trading (46%) and manufacturing (25%). 80% of SME loans are secured. Regarding the latter, household and agriculture lending were key growth drivers in H1. As of June 2020, the three largest segments of the retail loan book are household businesses (37%), mortgage (35%) and agriculture (23%), with 98% of those as secured loans.

HD Saison’s lending grew by 7.2% YTD in H1, with the fastest expansion in CDs. This loan growth is considered desirable against a mostly flat balance in FE Credit and (as per HDB) a -13% YTD decline in the consumer finance market size.

Total deposits surged by 18.2% YTD with valuable papers increasing by 15.1% YTD. Customer deposits’ growth was 18.9% YTD. The retail and SME segments accounts for respectively 54% and 32% of the deposit portfolio with their respective expansion at 11.0% YTD and 17.2% YTD.

Upon a credit quota top-up by SBV, the parent bank was given a new limit of 20%. HDB also plans to seek for an additional quota for HD Saison from the current quota of 10%. With relatively strong capital and healthy liquidity (CAR at 11.5%, LDR at 75.1%, short-term funding for medium/long term loans ratio at 21.0%), we believe HDB can make the most of this top tier credit quota. The actual growth should depend on Covid-19 containment and economic recovery.