Earnings Report /
Vietnam

Military Commercial: Desirable FY 19 earnings growth, but more headwinds; cut TP

  • Potential headwinds from the impact of the Covid-19 pandemic

  • But tailwinds from retail lending, efficiency improvement and stronger capital base

  • Revise target price to VND21,200 (previously VND27,000), reiterate Buy

Lam Nguyen
Lam Nguyen

Banking, Market Strat

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Rong Viet
31 March 2020
Published byRong Viet

The bank is facing some potential headwinds including the impact of the coronavirus pandemic on credit growth, NIM and asset quality, along with the difficulty to maintain high growth of service fee income and control provision charges amid increasing risk appetite. However, some tailwinds are still intact, including the continuous expansion of retail lending (especially consumer finance), efficiency improvement, and a stronger capital base upon private placement earlier this year. We consider the current PB 2020f of 0.7x attractive on the expectation that earnings growth outlook is still constructive in the medium term. 

With the base case assumption that the coronavirus would be contained by Q2 this year, we revise MBB’s target price to VND21,200, which is 20% lower than the latest figure as laid out in our 2020 Strategy report (VND27,000). Coupled with an expected cash dividend of VND600, the total upside is 60% from the closing price of 30 March 2020. We thereby reiterate our Buy recommendation. 

2019: Desirable earnings growth, but more headwinds

  • Operating income grew 26.2% yoy owing to positive growth in virtually all activities. The 23.4% yoy growth in NII was contributed by NIM expansion of 34bps (to 4.9%) and an 18.8% yoy growth in consolidated credit (17.8% for parent bank and 57.5% for MCredit). Corporate bonds expanded more strongly and accounts for 5.7% of total credit (from 3.9% at end-2018).
  • Service income increased by 24.4% yoy, driven by insurance income (+33.9% yoy). Income from other activities saw the strongest expansion with a growth of 44.9% yoy, boosted by a quadruple in income from investment securities trading.
  • In contrast to the moderate growth of 11.3% yoy in operating expenses, provision expenses soared by 61.0% yoy, eventually leading to a consolidated PBT growth of 29.2% yoy. This was only similar to the parent bank’s growth, implying that the earnings trajectory of subsidiaries were leveling off quickly. 

2020 Outlook: A more prudent view due to Covid-19 pandemic

  • The evolving situation of the coronavirus pandemic demands for a revision of our 2020 forecasts. We cut our consolidated credit growth forecast to 14.3% (14% at the parent bank and 25% at MCredit). We also expect that consolidated NIM will only be able to rise slightly by 10bps, to 5.0%, which is lower than our previous forecast, due to the impact on both the parent’s bank and MCredit’s lending rates.
  • Services income is forecast to grow by 24.6% yoy, accounting for 13.3% of 2020 TOI, mainly driven by the life insurance subsidiary.
  • We forecast that consolidated CIR will drop slightly to 38.0%. Provision expenses are forecast to rise considerably by 36.0% to cope with the situation.
  • We reduce the consolidated NPAT growth forecast by 8ppts to 17.5% yoy.