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VPB – Nearer to FE Credit divestment deal – Update

Company Note 19/01/2021    227

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  • Reiterate Add with a higher TP of VND44,300 as we raise our loan growth assumptions and lift our target P/BV to reflect a re-rating in banking sector.
  • We forecast an EPS CAGR of 21% over FY20-23F, driven by strong credit growth and NIM expansion.
  • The bank is in negotiations with a foreign partner about selling its stake in FE Credit, expecting the deal to be completed by 3Q21F.

Market price

Target price

Dividend yield

Recommendation

Sector

VND 36,450

VND 44,300

0%

ADD

BANKS

Reiterate Add with a higher target price of VND44,300

We raise our EPS forecasts for FY20-22F by 9-15% on the back of higher credit growth and lower provision expense assumptions. As a result, our target price rises 27% to VND44,300, equivalent to 1.65x FY21F P/BV, which is 18% higher than private local banks’, ex-VCB. VPB’s FY19-22F EPS growth (21.1%) is likely to outperform that of local peers (13%) and regional peers (10%), in our estimate. Thanks to stronger-than-peers FY20-22F earnings growth, we believe VPB deserves to trade at a premium to peers. Our new TP is based on the equal weight of residual income valuation and a higher target 1.7x FY21F P/BV from 1.4x to reflect a sharp re-rating in the banking sector.

Forecast EPS CAGR of 21% over FY20-23F

We project a net profit CAGR of 21% over FY20-22F, driven by 17% CAGR in net interest income, on the back of 16% loan CAGR and 34bp NIM expansion over the period. We believe the Covid-19 outbreak will be contained in 2021, fuelling consumer lending activities as well as blended NIM. We forecast 16% CAGR in non-II, including 21.5% CAGR in fee income, for FY20-23F, thanks to income from payment services and bancassurance. On the balance sheet side, we project the non-performing loan and loan loss reserve ratios to sustain in FY20-23F at 3% and 49%, respectively.

More upside from the FE divestment deal

According to VPB’s BOD, the bank is negotiating with a foreign partner about selling its stake in FE Credit and expects this deal to be finalised in the third quarter of 2021. We believe selling FE Credit to an experienced partner at this time will create synergy by improving the company’s funding cost and data management. Given its leadership position in the Vietnamese unsecured lending market and a sustainable ROE of 20-25% (among the most profitable companies in the region), we believe FE Credit could command a target P/BV of 3.5-4.0x, the lowest among regional peers with similar ROE for this strategic deal (equivalent to a company valuation of US$2.3bn-2.6bn).

Re-rating catalysts and downside risks

Downside risks could come from higher-than-expected credit costs. Potential re-rating catalysts include better-than-expected asset yields and equity raising via the sale of a maximum 49% stake in FE Credit with higher-than-expected valuation to strategic investors.

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