VCB_20180226_BSC_Vietnam company update_EN_ICB8355

Valuation
On 26, February, 2018, VCB shares were traded at VND 71,900/share, equivalent to P/E FW of 16.37x and P/B of 3.9x, relatively high compared to local and regional banks, median P/B are 1.88x and 1.1x, respectively.
Investment highlights
•    Sustainable and strong business growth. Loans grew by 17.93%. Low pure LDR is at 78%. Profit after tax increased by 32.02%, in which net income up by 18% yoy, service income rose by 21% yoy, total operating income before provisions hiked by 17% yoy. High ROA and ROE are rising, reaching 1% and 17.58%, respectively.
•    Asset quality is good, provision expense for credit risk is declining. Bad debt at the end of 2017 decreased both absolutely and relatively. NPL ratio was 1.14%. VCB solved entire VAMC bond in 2016. High loans loss coverage ratio, reaching 130.67%. VCB wrote off more than VND 6,200 billion out of balance sheet, and made provision of VND 6,198 billion in 2017. Assuming that the NPL coverage ratio up to 150%, VCB wrote off VND 3,000 billion of bad debt, 2018’s provision expenses decrease by 5% to VND 5.876 billion. In addition, VCB can record other income from off- balance sheet NPLs recovery. Total amount of off-balance sheet NPLs was VND 17,688 billion.
•    BSC forecasts that profit after tax in 2018 will reach VND 15.781 trillion, up 74% yoy, including (1) 35% yoy profit from core operations, (2) VND 7,532 billion profit from divestment and NPLs solution. EPS after excluding bonus and welfare fund is VND 4,392/share, EPS from core operations was VND 3,393/share. Equity is estimated at VND 66,338 billion, book value is VND 18,439/share.
Catalyst:
•    Selling 10% of equity to foreign investors.
•    Divestment from other credit institutions, estimated profit for 2018 is about VND 1,000 billion (according to VCB chairman) and VND 3,848 billion in pre-tax according to the market value of MBB, EIB.