Earnings Report /
Vietnam

Ho Chi Minh City Development Bank: Pressured by Covid-19, but outlook remains constructive; raise TP

  • Q1 20: NII-led growth, strong increase in provisions from a low base

  • For 2020, net interest income is expected to stay strong

  • We raise HDB’s target price to VND31,000; Accumulate

Lam Nguyen
Lam Nguyen

Banking, Market Strat

Follow
Rong Viet
17 June 2020
Published byRong Viet

Currently, HDB’s income growth is still primarily driven by net interest income, while other income streams remains limited, especially under unfavourable economic conditions. For 2020, net interest income is expected to stay strong, but service income is likely to pick up only if the exclusive bancassurance agreement is finalised (expected by H2 20). Regarding expense, in Q1 20 the bank accumulated some reserves for trading and investment securities, operating and provision expenses just in case of the coronavirus situation worsening. We expect that this relatively prudent provisioning will be able to moderate the coronavirus impact on the bottom line in the next quarters.

Considering the bank’s solid financials and resilience to the Covid-19 impact, we raise HDB’s target price to VND31,000, equivalent to a potential upside of 14 % versus the current market price. We recommend to Accumulate the stock.

Q1 20: NII-led growth, strong increase in provisions from a low base

  • The parent bank’s Q1 20 PBT increased by 7.1% yoy to VND964bn (US$41.9mn), while HD Saison’s PBT was up by 36% yoy to VND282bn (US$12.3mn).

  • The parent bank’s credit expanded by 6.0% YTD (+19.4% yoy) while HD Saison’s by 4.9% YTD (22.8% yoy). Consolidated NIM improved from 4.3% to 5.4% thanks to both the parent bank (from 2.8 to 3.8%) and HD Saison (from 26.6 to 27.4%). Overall, consolidated NII rose by 42.1% yoy, leading total income growth.

  • Service income increased by 11.5% yoy, still driven by HD Saison’s insurance commissions. Income from other activities dropped by 63.0% yoy mainly due to provision surge for investment securities, most of which are government bonds.

  • TOI rose by 27.8% yoy. CIR increased to 51% from 46% in Q1 19 due to the advance booking of staff costs. Asset quality remained stable due to a 29.0% yoy increase in provision expenses. PBT growth reached 13.5% yoy.

2020 Outlook: Pressured by the Covid-19 impact yet remains constructive

  • We forecast a 15% consolidated credit growth (equal at the parent bank and HD Saison) along with a 20bps improvement in consolidated NIM to 5.0%, which translates to a 16.8% yoy growth in 2020e NII.

  • We keep our forecast that services income will grow by 33.2% yoy, accounting for 6.2% of TOI, due to the boost of bancassurance and card fees.

  • We forecast that consolidated CIR will stay at 44.6%, and raise our provision expenses growth forecast to 23.7% yoy.

  • PBT is expected to increase by 16.7% yoy to VND5,858bn (US$254.7mn), which is a bit lower than our latest forecast to reflect a marginally higher operating and provision expenses.