According to the Vietcombank Securities Company (VCBS), Vietnam Maritime Commercial Joint Stock Bank (MSB) is a dynamic, modern, small-sized retail bank with major strengths in SMEs credit, Government bond trading and foreign exchange. After being officially listed in HOSE, 2021 promises to be a year of outstanding growth with many bright spots in MSB’s business outlook. “Therefore, we recommend BUY and estimate the fair value of MSB stock at VND 29,621 /share”, the firm said in its updated report about MSB.
MSB is ready for a breakthrough due to the key factors, such as: Growth potential coming from retail banking segment; Cost of fund advantage; High value bancassurance contract signed; Profits from sales of subsidiaries; Focus on implementing hi-tech projects to improve operational efficiency in the long run; and A clear roadmap for raising capital will support credit growth at a higher speed than the industry average, reported VCBS.
BUSINESS RESULTS 2020
Profits grew rapidly in the second half of 2020 thanks to a sharp decline in cost of fund and positive growth in non-interest income.
In 2020, MSB recorded pre-tax profit of VND 2,523 billion (+95.9% yoy) thanks to the impressive growth of both interest and non-interest income.
Good credit growth at the end of 2020: MSB recorded credit growth of 25,1%, mainly concentrated in Q4.2020. Specifically, customer loans reached VND 79,341 billion (+18.9% yoy) and corporate bond outstanding was VND 5,622 billion (+29.3% yoy).
Loans to large corporate customer segment had the highest growth rate of +33.4% yoy and accounted for 31% of outstanding loans. Loans to SMEs group, which is MSB’s strength, increased by +24.8% yoy, accounting for 41%, and loans to individual customers reached VND 22,189 billion (+16.4% yoy, accounting for 28%). In terms of industry, real estate and construction accounted for 20.5% of total outstanding loans, mainly to projects developed by TNG Holdings Group; Meanwhile, hotel and restaurant only accounted for 0.3% of outstanding loans.
Capitals from deposits and valuable papers recorded VND 99,222 billion (+10.4% yoy). Of which, VND 87,510 billion was customer deposits (~ 88% of total capital) and the remaining VND 11,711 billion was valuable papers. Demand deposits (CASA) of MSB reached VND 23,327 billion (+48.8% yoy), CASA ratio increased sharply to 26.7% with prospects coming from individual customers.
Total operating income reached VND 7,182 billion (+52.3% yoy), including:
- Net interest income was recorded at VND4,822 billion(+57.5% yoy). Cost of fund decreased significantly compared to 2019, helping net interest margin (NIM) expand to 3.4% by the end of 2020.
- Non-interest income reached VND 8,291 billion (+42.8% yoy). Growth recorded in activities considered MSB’s strength, including: Government bond and foreign exchange trading, bancassurance.
Cost to income ratio (CIR) of MSB was 49.9%, operating expense was recorded at VND 3,586 billion (+43.3% yoy). MSB is trying to improve its operational efficiency with a decreasing CIR over the years, but the figure is still quite high compared to the industry average due to high expenses of payrolls, rentals, and management expenses.
MSB’s ROAE in 2020 reached 12.7%, a sharp increase compared to 2019. ROAA also grew markedly over the same period to 1.2%.
Completing settlement of VAMC bonds and provisions to write off bad debts under the Restructuring Scheme.
NPL ratio recorded at 1.96%, slightly down from 2.04% in 2019 thanks to an increase in bad debt write-off reaching VND 1,124 billion during the period. Restructured debt according to Circular 01 accounts for about 1.85% of total outstanding loans by the end of 2020. With provision expenses reaching VND 1,073 billion (+16% yoy), MSB has bought back all of it VAMC bonds before maturity in Q3.2020 and brought VND 3,363 billion of bad debt to off-balance sheet. Provisioning coverage ratio (LLCR) decreased to 54%.
BUSINESS OUTLOOK
Growth potential coming from the retail banking segment.
The main driving force of MSB in the coming years will be the retail segment. Currently, the proportion of profit brought by the retail segment is only less than 10%, while that of other banks is up to 40-60%. For individual customer segment, MSB will seek to exploit the potential of customers with salary income and business owners. In addition, MSB will continue to focus on SMEs and micro-enterprise segments. Thanks to the classification and management of customers according to four specialized bank segments, MSB can always actively develop new products to meet the diversified needs of customers, for example, M-Bussiness, M-Pro, M- Payroll for individual customers, or specific products for Start-ups and FDI businesses, etc.
Cost of fund advantage.
As one of the pioneer banks applying a customer centric strategy, MSB has developed different products to attract CASA such as: free money transfer, online account opening via eKYC, mobile banking app integrating many functions, payment account packages with attractive incentives, etc. Thanks to that, CASA ratio increased sharply to 26.7% from 19.7% in 2019, with the proportion of demand deposits from individual customers increasing and curently accounts for 50% of total demand deposits. The high amount of CASA contributed by individual customers is considered more sustainable than than CASA from organizations and this will be the key driver for MSB to maintain a stable low-cost source of capital.
In addition to attracting a large amount of demand deposits, lending interest rates decreasing at a slower speed than deposit rates also helps MSB earn better interest income from the second half of 2020. Cost of fund in Q4.2020 decreased sharply to 2.65%, bringing MSB into the group of banks with the lowest cost of fund in the system, only after VCB and TCB. The low interest rate environment is expected to continue helping MSB maintain its low cost of fund advantage and improve its NIM in the long term.
High value bancassurance contract signed.
MSB and Prudential signed an exclusive bancassurance contract for a 15-year term and the Upfront fee can reach up to VND 3,500 billion according to our estimation. This bancassurance partnership is expected to bring significant income to MSB thanks to the following reasons:
- Experience and capacity of MSB in bancassurance activities: By the end of 2020, MSB’s insurance sales are in the top 10 of the bancasurance market. Net revenue from life insurance in 11M.2020 increased by nearly 2.2 times compared to the same period last year, averaging VND 50 billion/month during the second half of the year and currently accounts for about 29% of customer fee income. Thanks to its selective high income customer base, the rate of maintaining a second year contract at MSB is always among the highest in the market at over 80%, while many other banks remain at 50-70%. Premium revenue is expected to grow at 30- 40% per annum over the next five years, not counting the Upfront fee to be received.
- Prudential has built an effective bancassurance partnership with MSB since 2013 and is currently in the top 3 life insurers with the biggest market shares in Vietnam. Bringing this partnership to a new level in the form of exclusive distribution and proactively providing Prudential’s optimal product and service packages to customers through existing channels as well as new channels especially digital, is expected to help MSB boost the number of new contracts and premium revenue in the coming years.
- In addition, the remaining number of capable banks with potential for signing exclusive bancassurance with insurance companies is very few, which is also an advantage of MSB when negotiating contract.
Regarding the accounting of profits from Upfront fee, MSB is likely to choose the method of gradual accounting within 3-5 years to avoid a major impact on the bank’s equity and business plans for the following years.
Other business prospects of MSB in 2021
MSB’s main expectations include:
- Profits from sales of subsidiaries: MSB announced the transfer of all capital contribution value at MSB AMC and recorded an additional income of VND 224 billion. In 2021, the bank also plans to divest from its consumer finance company FCCOM based on two options – selling all assets or selling 50% to a strategic partner, in which the bank will provide support in terms of liquidity, IT systems and existing customer base.
- Focus on implementing hi-tech projects to improve operational efficiency in the long run: MSB is currently one of the banks that perform well in data mining for business decisions and is also investing heavily in projects such as building a big-data system, upgrading transaction system, etc. MSB is developing in parallel between traditional digitized banking and fully-digital banking TNEX. The target is 2 million new customers per year and over the next 3 years, customers from digital channel will account for 30% and each customer will use 3.5-4 banking products on average. We believe that, by quickly grasping and applying technology, MSB will maintain better operational efficiency than the industry average in the future, while enhancing its competitiveness in the retail segment.
- Aclearroadmapforraisingcapitalwillsupportcreditgrowthatahigherspeedthanthe industry average: In Q1.2021, MSB successfully offered 82.5 million treasury shares for sale at the price of VND 11,500-12,000 VND. At the same time, the bank will issue the remaining 18 million treasury shares to sell/reward employees. We expect that the process will continue to increase MSB charter capital, improve its capital adequacy ratio and help MSB be assigned a credit “room” higher than the industry average. MSB is one of the first four banks to apply the first three pillars of Basel II and is applying Basel III standards internally. At the upcoming shareholders’ meeting in 2021, MSB will submit to shareholders the plan to increase charter capital from VND 11,750 billion to VND 15,275 billion by paying 30% dividend in shares. In the 5-year plan, the bank expects an average charter capital growth of 8%/year to VND 17,300 billion by 2024 from its retained profit each year.
Risks to MSB include:
- Bad debt risk: with a credit portfolio focusing on SME lending, MSB’s profit will be negatively affected when bad debt increases and credit growth slows down in case of another pandemic breakout by the end of 2021.
- Concentration risk: with more than 20% of outstanding loans in real estate and a strategy concentrating around the ecosystem of a large client, MSB may face difficulties in credit growth and asset quality if there is an interruption in the operations of that large client.
VALUATION
2021 Forecast
VCBS’s forecast is based on the following key assumptions of a base case scenario:
(1) Customer loan growth is 23%.
(2) Yield on interest-earning assets is 6.81%.
(3) Cost of fund reduces to 3.33%.
(4) NPL ratio is 1.86% and provisioning coverage ratio is 59.1%.
(5) CIR reduces to 48.4%
(6) MSB recognizes a profit of around VND 1,400 billion in 2021 from the sale of MSB AMC and Upfront fee of the exclusive bancassuarance.
Thus, we estimate that MSB’s EBT will reach VND 3,971 billion in 2021 (+57.4% yoy), equivalent to EPS of VND 2,704 /share and BVPS of VND 18,530 /share.
Combining valuation method: fair value at VND 29,621 /share
INVESTMENT VIEW
MSB is a dynamic, modern, small-sized retail bank with major strengths in SME credit, Government bond trading and foreign exchange. After being officially listed in HOSE, 2021 promises to be a year of outstanding growth with many bright spots in MSB’s business outlook. “Therefore, we recommend BUY and estimate the fair value of MSB stock at VND 29,621 /share”.
Source: VCBS Research center.