Equity Analysis /
Vietnam

Military Commercial: H1 19 – Strong NIM, credit expansion

    Anh Nguyen
    Rong Viet
    31 July 2019
    Published by

    Strong expansion in interest income and service income. MBB’s H1 19 PBT reached VND4,875bn (+27.3% yoy), fulfilling 51.3% of the full year guidance. The growth was driven by strong service and net interest income. The associates are maintaining a higher growth rate than the parent bank with consolidated PBT increasing by 27.3% yoy. Although there is an increase in impaired loans, the high earnings growth allows the bank to write off debts early and maintain a healthy book.

    Credit continued to expand in Q2 19 and consolidated total credit grew 13.9% YTD to VND254.5bn, with customer lending reaching VND238,9bn (+11.3% YTD) and corporate bonds increasing to VND15,6bn (+87.7% YTD). As one of the early adopters of Basel capital adequacy requirement, MBB received 4% additional credit growth limit from the State Bank of Vietnam (total quota 17% instead of 13% given initially). The credit growth at the parent bank was 13.3% YTD, while our estimate show that MCredit’s reached c31.8% YTD. This means that the parent bank and MCredit have c3.7% and 5.2% room left, respectively, for credit expansion in H2 19.

    Net interest margin (trailing 12 months) also improved rising 21bps to 4.7% in Q2 19. In our view, NIM improvement was led by the expansion of retail banking and consumer credit, which pushed asset yield to increase faster than funding costs. The increase in funding cost was partly caused by a reduction in CASA ratio to 33.0% from 42.1% by end-2018. With strong credit and NIM expansion, net interest income increased by 25.5% yoy, largely driven by MCredit.

    Meanwhile, loans to individuals saw a stronger expansion than overall portfolio (+15.6% YTD versus 11.3% YTD). The proportion of retail lending in total portfolio increased to 39.2% in H1 19 compared with 34.4% a year ago.

    Management has announced plans to issue 7.5% of capital to foreign investors this year through 123mn new shares and selling 38.9mn treasury stocks. If the plan is successful, the bank is likely to gain at least VND4tn and will get enough capital buffers for comfortable growth in the next few years. This can be another catalyst for the stock price in the short term.

    We have a Buy rating on the stock with a target price of VND30,500, c36% higher than the current market price. MBB is currently trading at VND22,350, equivalent to an attractive 2019f PBR of 1.2x.