October 13, 2016
- ACB enjoys a decent stock run on positive earnings prospects and rumors of possible treasury share sale.
- First 9M prospects look good.
- HSC expects EBT to grow 22% this year and surpass forecasts.
- Longer term prospects look good as we forecast EBT grows at a CAGR of 44% until FY2018.
- Estimate of current CAR at around 13.8%, thus, ACB might activate treasury share sell out plan in FY2017.
- FOL is still full, thus ACB might offer some as ESOP to employees or reallocate as a stock bonus.
- Forward P/B of 1.37xs and P/E of 14.48xs for FY2016.
- Reiterate Outperform.
ACB enjoys a decent stock run on positive earnings prospects and rumours of possible treasury share sale
Asia Commercial Bank (ACB – Outperform) stock has been running hard recently being up 2.69% to VND19,500 and also up 11.1% from last week’s price. The major driving factors behind the recent upsurge are positive earnings prospects for the first 9M and persistent rumours over possible sales of its treasury shares.
First 9M prospects look good – HSC estimates that first 9M EBT will come to VND1,200 (+10.09%) driven by credit growth of 17.5% YTD to VND157 trillion and customer deposit growth of 14.7%YTD to VND200 trillion. We also expect that NIM will decrease slightly by 5bps to 3.31%. The story behind ACB this year is one of accelerated credit growth as the bank has emerged from several years under SBV supervision where they substantially restructured their balance sheet and provisioned or write-off various legacy debt issues.
HSC expects EBT to grow 22% this year and surpass forecasts – HSC also forecasts that full year EBT will grow by 22% to VND1,603 billion or above the banks own target of VND1,500 billion (+14.14% y/y) and driven by the following assumptions;
1. 25% y/y growth in customer loans to VND167.53 trillion and 17% y/y growth in customer deposits to VND204.65 billion;
2. NIMs will drop 7bps to 3.34%, thus NII will rise by 16.13% y/y to VND6,832 billion;
3. Total non-interest income will be VND554.60 billion (+64.7% y/y);
4. Total provision expenses will up 43% y/y to VND1,264 billion;
5. Operating expense will increase 12.4% y/y to VND4,519 billion and CIR will be 55.87%;
6. CAR is around 13% as at FY2016-end.
We then see an adjusted EPS after bonus and welfare of VND1,347 and a BVPS of VND14,239 valuing the bank at a P/B of 1.37.
Longer term prospects look good as we forecast EBT grows at a CAGR of 44% until FY2018 – Looking ahead further we see longer term growth exceeding that of most other banks given a low LDR and the fact that most prudential ratios well controlled. We therefore forecast that over during FY2016-2018, ACB will grow EBT by a CAGR of 44.4% driven by CAGR of 19% in customer loans growth, a CAGR of 22% in customer deposit growth and a CAGR of 14.33% for net interest income growth. Although we also expect NIM may slightly decrease from 3.34% to 3.00% during the same period due to a deceleration in the growth of retail loans. Even so we expect CIR drop to around 50% by FY2018. And that ROE and ROA will improve to 0.81% and 13.6% as at FY2018-end.
Another factor behind the recent share price run is the ongoing speculation over the possible sale of current treasury share position totaling 41.4 million shares or 4.42% of the OS. At the current share price this is valued at about VND790 billion while the cost on the book is around VND665 billion. The market’s excitement of course is a little odd given the fact that for an FOL full stock like ACB, such a share sale would not be open to foreign investors. Alternatives to selling the shares would be to offer some as ESOP to employees; reallocate as a stock bonus. Or ask for permission to expand the foreign room (this is not as farfetched as you might think as other banks may find themselves in a similar situation).
However, we doubt that ACB will activate this plan in FY2016 as their current CAR of around 13.8% according to our rough estimation is still sufficient for asset growth, especially after the issuance of VND2,000 billion of subordinated long-term bonds at the end of June 2016 which boosted Tier 2 capital. According to HSC forecasts ACB’s CAR will still be close to 13% as at FY2016-end which suggests that they have plenty of time to raise capital. From what we understand any plan to sell the treasury shares will only occur in FY2017 to boost CAR before Basel 2 is applied in FY2018.