HDB – Let the good times roll – Initiation

• HDB is a retail-oriented bank focusing on unmet-financial-need segment i.e. rural population, which makes up more than 50% of its loan book.
• We expect HDB will keep delivering a strong net profit growth of 24%/22% yoy in FY22-23F based on healthy credit growth and fast-growing fee incomes.
• Valuation is still undemanding; initiate ADD with TP of VND35,900.

Initiate coverage with ADD rating; potential upside of 43%
We initiate HDB with an ADD rating and TP of VND35,900. Our TP is based on the combination of 1.9x FY22F P/BV and residual income valuation approach (COE: 15.2%, LTG: 3%). The bank’s business model remains solid with a robust profitability and a well-capitalized balance sheet to capture growth opportunities. We expect HDB will keep delivering strong net profit growth of c.22% on average during FY22-24F and any successful exclusive bancassurance (banca) deals will provide re-rating catalysts for the bank.
Solid business model with robust profitability
HDB is a retail-oriented bank focusing on retail & SMEs and consumer finance. Unlike other banks, HDB has brought its services to the people living rural areas, which has a huge loan demand but low penetration to modern banking services. Moreover, HDB has a strong competitive advantage of huge retail customer base given its tight relationships with large corporations in Vietnam such as VietJet, Vinamilk, Petrolimex… Thanks to the strong execution on this banking model with sound risk appetite, HDB has moved up to the higher-quality growth phase with a 5-year CAGR of 20% in total assets and 52.3% in net profit. The bank has become the top-5 most profitable bank in FY21 with 4.4% NIM and 23.3% ROE with a better asset quality than its high-risk-appetite peers with 1.7% NPL and 70% LLR (peers of 2.8% and 61.7%, respectively).
Credit expansion leads the growth; bancassurance adds more momentum
We expect HDB will maintain solid net profit growth of 24%/22% yoy in FY22-23F. HDB has become one of the best capitalized banks in Vietnam with a 14.4% CAR (peers average of 9-12%); thus it should be given a high credit growth quota by the central bank of at least 22% this year, per our estimate. Besides, banca sales will enable HDB to double FY22F fee incomes given its potential market segment and already large customer base; and any possible exclusive banca partnerships will further lift up the bank’s fee incomes in the upcoming time.
Attractive valuation
HDB is trading at FY22F P/BV of 1.5x, much lower than 5-year P/BV average of 1.9x and also peers’ average of 1.9x, while its profitability has surpassed the 5-year-average range (ROEs of 23%). We believe the recent market price correction has triggered a good point to accumulate a bank with high profitability and good asset quality. Risks to our call include higher-than-expected inflation which lower credit growth and higher-than-expected bad debt.

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