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ACB – Synergies from the exclusive banca deal – Update

Company Note 27/11/2020    318

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  • On 18 Nov 2020, ACB entered into a US$370m exclusive bancassurance tie-up with Sun Life Vietnam (Unlisted), effective on 01 Jan 2021.
  • We raise our FY21/22/23F EPS by 9.2%/8.2%/7.6% on higher non-fee income growth, bolstered by the recent bancassurance deal.
  • Reiterate Add with a higher TP of VND32,400.

Market price

Target price

Dividend yield

Recommendation

Sector

VND 27,400

VND 32,400

0%

ADD

Banks

Non-interest income (non-NII) growth to accelerate going forward

The upfront fee payment for the exclusive 15-year bancassurance partnership is US$370m, slightly lower than that of US$382m in the FWD-Vietcombank deal last year. Based on the FWD-VCB deal, we estimate that this upfront fee payment will be booked equally over the next five years. With ACB’s intensive network of 371 branches and transaction offices, and 3.6m individual accounts, we expect non-NII to increase by 33-35% in FY21-23F.

Awaiting migration to the main bourse

On 20 Nov 2020, ACB was allowed to migrate to the Ho Chi Minh Stock Exchange (HOSE). As long as the bank moves to HOSE before end-2020, ACB is likely to be added into two blue-chip indexes, VN30 and VNDiamond, when the indexes are reviewed in Aug 21 and Nov 21, respectively. As such, ACB will meet all requirements of these indexes, including: (i) top 20 market cap; (ii) minimum free float of 10%; or (iii) daily turnover; (iv) maximum of the remaining foreign ownership limits of 5%; and v) at least 6-month listing on HOSE.

Raise FY21-23F EPS forecasts by 7.6-9.2%

We raise our net fee income (NFI) forecasts by 63.8%/52.3%/47.7% for FY21F/22F/23F to reflect the exclusive bancassurance deal. We expect ACB to receive both the upfront fee income of US$370m, dividing equally over the next five years, starting in 2021F, and the new stream of commission fee. Meanwhile, we maintain our loan growth forecast of c.15% yoy in FY21-22F and CIR of 48%. As a result, our net profit forecasts rise by 9.1%/8.1% for FY21/22F.

Reiterate Add with higher TP of VND32,400

We raise our TP by 14.9% to VND32,400, following our EPS forecast revisions. ACB was officially allowed to list on the HOSE on 20 Nov 2020. The migration to the main bourse would increase liquidity and attract more investors, in our view. Our TP is based on a residual income valuation (COE: 14%, LTG: 3%) and 1.7x FY21F P/BV, weighted equally. We upgrade our valuation multiple to 1.7x FY21F P/BV from 1.5x FY21F P/BV previously to reflect the promising outlook from the bancassurance deal. Downside risks include lower-than-expected loan growth, and delays in receiving upfront fee from the recent deal in FY21/22F.

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