Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Valuation Date: October 26th, 2018 Industry: Regional Banks Recommendation: BUY
Ticker: ACB (HNX) Sector: Finance and Insurance and Target Price: VND 38,900
Credit Intermediation
Source: investing.com
2
Figure 4. Subsidiaries company
BUSINESS DESCRIPTION
Nature of
Subsidiary
business Established in 1993, Asia Commercial Joint Stock Bank (ACB) is one of the leading commercial banks
in Vietnam which focuses on retail banking with a wide network of branches and transaction offices
ACB Securities across the country.
Securities
Co. Ltd (ACBS)
MOMENTOUS MILESTONES ACB was the first private Vietnamese bank to issue MasterCard and Visa
international credit cards. In 1997, it managed to implement training programs on banking
ACB Assets operations, which was conducted by foreign bankers and banking specialists, in order to ensure the
Debt & Asset
Management Co. bank was employing the most modern banking practices available. In 2005, Standard Chartered Bank
Management
Ltd (ACBA) (SCB) became ACB’s strategic partner; as such, ACB benefited from SCB’s comprehensive technical
assistance. Currently, the Bank is considered one of the leading retail banks in the industry, and it is
focusing on positioning itself once again as a Vietnam banking leader.
ACB Leasing Co.
Finance leasing CORE BUSINESS ACB offers a comprehensive array of financial services in retail banking segment.
Ltd (ACBL)
With more than 20 years of experience and a large retail customer base, the Bank has been
recognized as a strong brand name in retail banking with a total of 354 branches, more than 11,000
ACB Capital ATM and 850 Western Union Agencies. ACB’s branch network stood at the 3rd place among
Fund
Management Co. Vietnamese Private Commercial Banks. Therefore, ACB is among the most network-intensive banks
management
Ltd (ACBC) comparing with its peers.
Source: Company data WIDE EXPERIENCES IN RETAIL BANKING ACB was established in 1993 with the strategy of focusing
Figure 5. Shareholders structure on retail banking right at the beginning. With more than 25 years of experiences, ACB proves that it
is the leading bank in this retail section. In 2017, lending activity of ACB, particularly in the retail
segment, has achieved impressive growth: ACB’s personal loans reached VND109 trillion by the end
of 2017 with an increase of 28% YoY; lending to SME also saw an impressive growth of 16% YoY. In
30% general, lending for SME account for approximately 22% of the industry’s total loan; While ACB’s
total loan portfolio for individual clients and SME accounts for nearly 89% of the bank’s total loans,
56% that of 2016 was 85%. These data shows that ACB is continuing to play a leading role for credit
growth of the whole banking sector.
14%
COMPANY STRATEGY
RETAIL BANKING DEVELOPMENT: ACB continues focusing on its customers’ segmentation:
individual and SMEs. At the same time, it plans to optimize the role of branches in the cluster and
Foreign Institutions region to improve sales productivity, strengthen the process of credit extension and operation for
Domestic Insititions this process. Despite focusing on retail banking, ACB also has high risk aversion, thus, the Bank
focuses on providing loans that are secured to minimize risk. For example, it mainly provides loans
Domestic Individuals
forfinal users of real estate.
Source: Company data
FUTURE BANKING: In 2018, ACB plans to put more efforts on Future Banking from 2020 – 2024
Figure 6. Local Countries GDP growth
rather than only focusing on bad debts and restructuring strategy from 2012 – 2017 with 3 main
18.00% goals:
16.00%
14.00%
1. Efficiency improvement: ACB has 34 processes in providing services and solutions for
12.00%
customers, including 16 and 14 processes for front and back department, respectively.
10.00%
Currently, headcount expenses of 2Q/2018 account for 21.47% of operation expense. The
8.00%
processes will be standardized in order to generate more income with fewer human resources,
6.00%
less paperwork and better quality, which will benefit ACB considerably.
4.00%
2. Customer base expansion: For future banks, ACB will rapidly expand its customer base by
2.00%
improving its customer services and developing more advanced products in the period of 2018-
0.00%
2019. Its target customers will include individuals who are close to existing clients, newly-
-2.00%
established businesses from household businesses & high-level professionals in the industry.
3. Digital Banking: The proportion of online transactions in payments, loans and deposits (which
Singapore Indonesia have been partially implemented through ACB's current mobile application) will be increased,
accounting for 20-22% of total personal transactions. At the same time, automation &
Thailand Myanmar standardization will be put efforts. ACB’s digital banks are expected to increase fee income and
Vietnam improve CIR and CASA, currently at 15.4% and lower than industry average (MBB: 39%, VCB:
28.3%, TCB: 24.6%, etc.).
Source: World Bank Data
LONG-TERM INVESTMENT PROJECT: Priority Banking Project: The project is implemented for
prioritized customer segmentation with superior chain of services, therefore develop effectively the
3
Figure 7. Vietnam GDP growth and forcast source of income from them. The project started in early 2015 with a budget of VND 40.62 billion.
8% 200% Transaction Banking Project: The project is executed in order to increase non-term deposits, non-
credit income from service fees, and to develop credit balance of individual & SMEs through
6% 150% distributor financing program. The project started in late 2014 with a budget of VND 27 billion.
4% 100% CUSTOMER ATTRACTION: In order to expand SME customer base, ACB plans to attract suppliers
2% 50%
and distributors of core businesses in the supply chain with reasonable pricing policy for interest
rates and fees. Moreover, ACB applies long-term and synchronous solutions in providing packaging
0% 0% to customers. Employees of SME clients are also the source of personal payroll through banks, in
which ACB aims to increase sales by upsell methods, credit card loans and other consumer loans.
This segment currently has 1.8 million customers and expected to have 5 million customers by
Credit to economy as % of GDP
GDP Growth
2019. For upper-class customer bases, ACB plans to increase deposit and income from
Inflation
bancassurance and credit cards.
Source: World Bank Data – Team Estimation MANAGEMENT & GOVERNANCE: Management is the factor that we found extremely appreciable
Figure 8. Population Demographic in ACB. Mr. Tran Mong Hung - ACB's former chairman of the board, his son Tran Hung Huy - the
current chairman of the board and family, have more than 30 years of operating experience in the
120
banking sector. They have successfully restructured ACB and dealing with bad debt after 5 years
100
since the incident in late 2012. In addition, they have a mindset for progress when setting a specific
80 growth plan and new development plans for every year. This is a rare case in the Vietnamese private
60 banking industry: when at least 90% of the owners do not have banking expertise and they still
40 manage to run the bank effectively.
20
0
INDUSTRY OVERVIEW
2012 2020
MACRO ANALYSIS
Low income class MAC
Vietnam GDP growth is among the highest comparing with many regional countries (Figure 6).
Source: BCG Recent GDP booming has strongly stimulated the nation economy growth as well as banking
Figure 9. Nonperforming loans ratio activities. World Bank forecast Vietnam annual GDP to grow at stable rate of 6.71% YoY and 6.51%
YoY in 2018 and 2019. Bank credit will remain the biggest source of lending in the Vietnam economy,
8%
as capital funding from equity and bond market are not yet sufficient comparing to those of some
6% comparable markets (APPENDIX 8). Upon strong economy growth, Vietnam inflation is expected to
maintain at stable rate of 4% per year.
4%
INDUSTRY ANALYSIS
2%
Banking industry has experienced radical growth in the recent years As Vietnam credit growth is
0% among the top of the local area, the banking industry has been very exciting. The most significance
highlight of Vietnam banking industry in 2017 is the improvement in assets quality. Non-performing
Bank nonperforming loans to total
loan ratio has dropped to 5.40%, at the lowest rate since 2014, and is expected to show further
gross loans (%) improvement in 2018 (Figure 9). Meanwhile in 2017, ACB had officialy cleared out of legacy non-
Adjusted NPL (reported NPL + VAMC) performing loans under VAMC bonds. With credit growth target at 17% YoY in 2018 and expected
to maintain at around 15% YoY in 2019 and 2020 by State Bank of Vietnam, we firmly believe that
Source: SBV statistics
banking industry still has many potentials to grow.
Figure 10. Vietnam Internet Demographic
DRIVERS
60% 200
DEMOGRAPHIC
50%
40%
150 The middle-class and affluent consumers (MACs) will double from 12 million in 2012 to 33 million in
30% 100
2022, with a CAGR of 12.25% per year, account for 34% of Vietnam population (Figure 8). The MACs
20%
have ability to access cutting edge financial and payment services, and they also have high demand
50 for personal lending. As a leading bank in personal lending segment, this transition is very favorable
10%
0% 0 for ACB business.
2003
2005
2007
2009
2011
2013
2015
2017
4
Technology and internet infiltration are speeding up at significantly in Vietnam (Figure 10). With 38%
Figure 11. Personal Lending on Total Loans of population is using smartphone, more than 50% of population with access to internet in 2017
60.0% according to World Bank, customers are having more ability to approach digital banking and financial
50.0% services than ever before. Therefore, technology and digital application will be a huge driver of Non-
40.0% interest income in the following years.
30.0% REGULATION
20.0% Regulation has a huge impact on shaping the environment of banking industry. The quality of assets
10.0% of banks and financial institutions has been greatly improved with the implication of Resolution
0.0% 42/2017/Minister-SBV on processing of bad debt. Furthermore, new requiredment of CAR according
2015 2016 2017 to Basel II Standard and short-term deposit for mid-long-term loan ratio ceiling is set to enhance the
SOCBs Peers ACB industry risk management framework.
Source: Team Analysis TRENDS
RETAIL SEGMENT EXPANSION
Figure 12. NII structure of ACB and peer
group (MBB, STB, HDB, VPB) Personal lending has expanded significantly in banks’ loans structure in 2017 (Figure 11). Rising
demand for consumer lending and personal loans have attracted many State-owned banks and
25,000
commercial banks to take foot in the retail segment. For ACB, retail banking has always been the
20,000 core business, especially in strategic locations in the South of Vietnam. Impressive growth of retail
15,000
segment is expected to keep on going in the following years.
10,000
NON-INTEREST INCOMES
Non-interest income (NII) is growing rapidly among banks, especially in retail- concentrated banks
5,000 (Figure 12) (APPENDIX 11). Higher demand for consumption has stimulus transaction and purchasing
- activities. In addition to earning from transaction fees, Bancassurance and Trade Financing are other
2015 2016 2017 huge sources of NII in 2017. For ACB, NII-CARG during 2016 and 2017 periods is the highest among
Bancassurance peers, at the rate of 213% YoY. With a large set of retail customers, ACB is highly capables of
Recovery from written-off expanding NII from this segment.
Other NII
Fee & Commision
Source: Team Analysis
COMPETITIVE POSITIONING
Figure 13. ACB Positioning The Banking Industry is characterized for strong rivalry from competitors and considerable power of
substitution (APPENDIX 4). ACB is the leading bank in retail banking segment. ACB has developed its
network in major cities and industrial areas, especially in the southern market. The southern market
is the most highly populated area in Vietnam with substantial economy growth and high demand of
comsumption and investment. According to General Statistic Office of Vietnam, this area contains
53% of enterprises in Vietnam, including a large amount of SME from various business sectors. ACB’s
success comes from the efficiency in personal lending and SMEs lending. At the same time ACB
provides superior services according to the demand customers.
COMPETITIVE POSITIONING
INTENSIVE NETWORK IN STRATEGIC AREA: ACB is at the 3rd place among the most intensive
branching private commercial banks in Vietnam, with over 354 branches across the countries. The
Source: Team analysis southern market, which is account for 78% of ACB earnings, is the most geographically concentrated
Figure 14. Asset Quality area consisting of 57% of ACB branches. For a country where banking penetration is relatively low –
100% 12.00% only about 30% of population has bank accounts, according to Oxford Business Group – Intensive
90% network gives ACB an upper hand in reaching out for new customers. Our research has pointed out
80% 10.00%
ACB’s geographical advantage compare to the peer group. (APPENDIX 9).
70% 8.00% EXCLUSIVE CONCENTRATION IN RETAIL BANKING: ACB highly focus in its core business: Retail
60%
50% 6.00% Banking. In terms of assets quality, ACB overwhelmingly outperforms all peer competitors. To
40% archive this level of quality, ACB focuses on secured loans while many competitor pursuit unsecured
4.00%
30% loans from credit consumption. In addition, ACB non-performing loans is highly covered, with
20% 2.00% Provision Coverage Ratio (PCR) is at 133.3% in the end of 2017, while peer competitors’ average PCR
10%
is at 82.34%. Among the peer group, Moody gives ACB the highest credit rating (APPENDIX 12).
0% 0.00%
ACB STB VPB HDB MBB INHEIRANT OF LEGACY FROM STRATEGIC PARTNERs: ACB has gone through many partnerships with
Group 5 Loans Group 4 Loans world leaders in financial and banking, including Standard Chartered Bank and International Finance
Group 3 Loans Group 2 Loans
Corporation of World Bank. ACB today’s professional and operating capability is largely contributed
NPL Ratio
by intensive technical assistance from these partners, especially human capital trainings, operational
Source: Companies data
supports. During the incident in 2012, not only did ACB outstandingly handled the withdrawn of
customers, but the bank managed to recover all the withdrawn under 2 months and got back on
5
Figure 15. Return on equity track after only 5 years to become the leading retail bank in Vietnam. The legacy that ACB inherited
25% is the priceless distinction between ACB and other competitors.
6
Figure 19. Non-Performing Loans Ratio previous period. However, the process will be completed soon, with income returning to growth in
4% 2017 that will help ACB's CIR fall to 54%. In 1Q2018, CIR ratio continued to decrease to 50.8% due
to to the acceleration of interest income with CAGR of 26.4%, higher than the increase in interest
3% fee. However, from our perspectives, in the next 1-2 years, it is difficult for the CIR of ACB to reduce
in short term due to the investment cost of banking technology and competitive compensation
policy to retain personnel, which requires a lot of funds to invest. In the long term, heavy investment
2%
in techonology will help the bank increase productivity and decrease proportion of staff expenses in
total operation expense. CIR is expected to decline gradually afterward.
1%
GREAT ASSET QUALITY IS A SUSTAINABLE FOUNDATION FOR PROFIT GROWTH.
0% In 2017, ACB made provisions up to 141.22% YoY (equivalent to VND1.3 trillion), the highest number
in recent years. Therefore, the amount of VND 600 billion of debt related to the G6 remaining from
the second quarter of 2017 has been fully dealt with. At the same time, the entire debt of VAMC
bonds has been completely redeemed by ACB, bringing the outstanding VAMC bonds at zero. As of
NPL NPL include VAMC 31/12/2017, ACB's NPL ratio reached 0.72%, which is lower than industry average (1.65%). After the
Source: Team Analysis first 6 months of 2018, ACB's bad debt ratio increased by 0.06% to 0.78%, making it become one of
the best companies having good quality of asset in the industry. If we include the group of overdue
Figure 20. Provision coverage ratio debt, this rate is only 1%, an impressive number compared to the general level of 4% of the system.
160% In addition, most of ACB's loans are secured loans, limit real estate loans due to cyclical nature and
high risks of this industry make the quality of its assets has always been maintained and improved,
140% always is one of the banks having best asset in the industry.
With no further provisioning for bad debts of G6 and debts sold to VAMC, together with a low bad
120%
debt ratio will help ACB save a lot of expenses in the future, contributing to increasing the company's
after-tax profits
100% VALUATION
80% We issue a BUY recommendation on Asia Commercial Bank (ACB) with a target price of VND
38,900, representing a 37% upside from the closing price of VND 28,300 per share of October 26th,
2018. Our target price calculation is based on a mix of the Residual Income to Firm model with a
Source: Team Analysis target price of VND 41,453 and multiple method with the target price of VND 33,092. We
respectively attributed weights of 60% for RI method and 40% to multiples method.
Figure 21. Cost of equity
7
Figure 22. Valuation MONTE CARLO SIMULATION
Monte Carlo simulation is used to determine the price range of ACB shares when the justified variables
Residual income method in the valuation model change randomly with different combinations. In our assumption, we use 4
variables:
BVPS 2018 16,260 • Credit growth rate
• Interest expense rate
PV of RI 10,751
• CIR
PV of Terminal value 14,442 • Cost of equity (Ke)
After analyzing, 80% of outcomes yield share price above current price of VND 28,300 and are in line
Price 41,453
with a BUY outlook. With 99% confidence interval, the price will fluctuate within VND 26,720 and
Multiples method VND 50,800.
SENSITIVITY ANALYSIS
P/B method 33,092
Based on our insights we believe in ACB’s growing potential, so we consider it is essential that we
TARGET PRICE 38,900 perform a sensitivity analysis on these primary varaiables of the model. The increase in cost of equity
to 15% and the increase in CIR to 49% can deteriorate company’s revenue and change our
Source: Team Analysis
recommendation.
Figure 24. Football Field 17% 28,515 27,484 26,454 25,423 24,393 23,362
VND
50,000 Source: Team Analysis
40,000 RISK ANALYSIS
30,000
20,000 MARKET RISK
RI P/E P/B [M1] Highly cyclical nature (Low probability, High impact)
Source: Team Analysis Bank credit that are highly vulnerable to economic fluctuations. According to our analysis,
Figure 25. Matrix risk correlation of 0.447 between credit growth and GDP growth illustrates profound influence of
economic growth on the industry’s performance. Although the Vietnamese economy in the next
Probability three years has been positively evaluated by World Bank, the team does not exclude the slowdown
and decline of economic growth of Vietnam from 2019, which will lead to lower credit demand
M1
B3 M2 among the sector and directly affect ACB’s credit growth. However, the increasing contribution of
C1
the service segment to the profit margin will mitigate the pressure of profit from credit activities.
B1
B2 [M2] Refinancing Risk (High probability, High impact)
C2
Based on the interest rate risk management model of ACB, the team estimates that the maturity gap
of ACB under the Maturity model is 1.34 and tends to increase, when in 2016 it was only at 0.9. With
the positive maturity gap, ACB will bear refinancing risk when interest rates increase, causing deposit
costs to rise faster than investment returns and reduce the bank’s profits. However, the proportion
L1 M3
of interest-sensitive assets of mostly 1-to-3-month maturity is around 63% of total asset. Those
assets are highly sensitive to the interest rates, on which the fluctuations of market rates will
promptly reflect to limit the refinancing risk of ACB.
[M3] Exchange Rate Risk (High probability, Low impact)
Source: Team Analysis Impact The bank's loans and advances are mainly denominated in VND (94.96%) and USD (4.51%), and non-
USD foreign denomination with the Off-balance-sheet/Total Asset ratio at 17%. ACB also has a risk
8
Figure 26. GDP growth and Credit Growth management strategy when the bank's Board of Directors has set a state quota for each currency,
50% including gold. Our team assesses that the FX risk will always be under control of the bank and will
have less impact on operating performance of ACB.
40%
BUSINESS AND OPERATION RISK
30%
[B1] Brand Deterioration (Low probability, High Impact)
Because brand is the core competitive advantage of ACB, any failures to manage the brand from
20%
quality, design, marketing plans, and service will materially deteriorate revenue. ACB’s management
team is fully aware of the risk, given by the comprehensive branding strategy and cooperation with
10%
reputational consultant (Value Partners) for effective control Brand Deterioration risk.
[B2] New Entrants Risk (Moderate Probability, Moderate Impact)
0% Strong competition in the consumer lending segment. Currently, consumer loans are competing
among different banks, especially state-owned commercial banks such as BID, CTG, and VCB, which
-10% are interested in this segment with competitive interest rates. However, ACB's main lending sector
GDP growth Credit Growth in the South, unlike the state-owned banks in the North, will have little impact on ACB's consumer
Source: Company data
lending.
Figure 27. GDP growth and Credit Growth [B3] Management Risk (Low Probability, High Impact)
8% The senior management team of ACB is competent and experienced in the banking industry and has
especially been with ACB since its inception. With the long-term adherence and recovery of ACB
6% from the crisis of 2012, it can be said that ACB's senior management team is capable and commits
to ACB in the coming years. However, the team does not exclude management risk as it is pointed
4%
out that in the past, ACB had fallen into crisis with the fault of senior management.
2% CREDIT RISK
0% [C1] Asset Quality Deterioration (Low Probability, High Impact)
Our team analysis has shown a correlation of -0.359 between NPL Ratio with GDP growth indicates
that the general NPL ratio of the system and that of ACB will sharply increase when the economy
plunges and will reduce ACB performance. Nonetheless, the strategy of retail lending and the strong
GDP growth Bank NPL ratio
data base of individuals and large SME will contribute to the dispersion of credit risks from small
Source: Company data loans, which is reflected when the overdue debt ratio is at 1.598%. In addition, the NPL-cover ratio
at 133% should help ACB with a strong additional credit security.
Figure 28. ACB Interest-rate sensitivity
assets [C2] Real Estate Crisis Risk (Low Probability, High Impact)
more than 5 years
Vietnam real estate market has recovered significantly compared since the recession period.
However, the team also identified the risk of real estate market downturn when the price of housing
1 to 5 years has escalated very large. With the orientation of lending money for real estate to end users, and
6 to 12 months only 9% of the disbursement for real estate projects should limit the impact of real estate market
downturn to the operation of ACB.
3 to 6 months
9
APPENDIX
APPENDIX 1: Balance Sheet
(millions VND) 2015 2016 2017 2018F 2019F 2020F
A. ASSETS 201,456,985 233,680,877 284,316,123 321,344,814 367,849,623 421,615,157
Cash and gold 2,806,088 3,541,388 4,851,710 5,834,541 7,016,468 8,437,823
Deposit at central bank 4,608,680 5,119,306 8,314,574 9,235,800 10,259,096 11,395,768
Deposit and loans to other 10,122,200 8,152,027 8,941,727 9,807,927 10,758,036 11,800,184
banks
Held-for-trading securities 100,457 1,183,306 1,236,555 1,292,200 1,350,349 1,411,115
Loans to customers 132,490,987 161,604,426 196,668,756 226,072,806 259,887,464 298,774,321
1. Loans to customers 134,031,804 163,401,221 198,513,394 228,290,403 262,533,964 301,914,058
2. Allowance for loans to (1,540,817) (1,796,795) (1,844,638) (2,217,597) (2,646,499) (3,139,737)
customers
Invested securities 38,679,144 42,801,465 52,718,405 58,336,993 64,554,396 71,434,433
Long-term investments and 208,219 190,194 190,042 190,042 190,042 190,042
Capital Contribution
Long-lived Assets 2,479,567 2,850,558 3,007,618 3,315,474 3,576,495 3,900,324
1. Tangible Assets 2,054,258 2,338,722 2,474,830 2,381,975 2,403,391 2,512,771
- Cost 3,219,139 3,682,372 4,048,359 4,210,293 4,496,691 4,881,652
- Accumulated Depreciation (1,164,881) (1,343,650) (1,573,529) (1,828,319) (2,093,300) (2,368,880)
2. Intangible Assets 425,309 511,836 532,788 486,128 439,468 451,733
- Cost 597,295 722,821 790,433 790,433 790,433 855,905
- Accumulated Depreciation (171,986) (210,985) (257,645) (304,305) (350,965) (404,172)
Invested real estate 61,921 211,872 256,132 256,132 256,132 256,132
Other assets 9,852,119 8,010,270 8,130,604 8,252,746 8,376,722 8,502,561
B. LIABILITIES & 201,456,985 233,680,877 284,316,123 321,344,814 367,849,623 421,615,157
SHAREHOLDERS' EQUITY
Deposits and borrowings from 2,433,330 2,235,115 15,453,746 6,707,397 6,906,945 7,158,904
other banks
Deposits from customers 174,918,997 207,051,269 241,392,932 286,168,109 327,933,709 375,816,756
Financial debt - - 10,491 - - -
Other borrwed and entrusted 161,678 122,697 136,466 136,532 136,597 136,663
funds
Valuable papers issued 3,075,000 6,615,000 6,761,000 6,921,776 7,086,375 7,254,888
Other liabilities 2,901,457 3,594,080 4,530,641 4,602,838 4,676,185 4,750,701
TOTAL LIABILITES 188,669,444 219,618,162 268,285,277 304,536,651 346,739,811 395,117,911
1. Equities 8,711,240 8,711,240 9,607,514 11,091,389.49 12,200,528.44 13,420,581.28
2. Undistributed profit 1,702,124 2,761,295 3,509,553 5,716,773 8,909,283 13,076,664
TOTAL EQUITY 12,787,542 14,062,716 16,030,847 16,808,162 21,109,812 26,497,246
10
APPENDIX 2: Income Statement
(millions VND) 2015 2016 2017 2018F 2019F 2020F
Net servicing fee profit 745,226 944,382 1,188,331 1,495,296 1,881,555 2,367,591
Profit from HFT securities 14,544 72,083 25,305 25,811 26,327 26,854
11
APPENDIX 3: Board of Management
Name Since Title
Do Minh Toan 2012 President
Nguyen Ngoc Nhu Uyen 2015 Executive Vice President, Chief Investment Officer
Kollagunta Sreenivasan Gopal 2017 Executive Vice President, Relationship Assistant Director
Five Forces
Competition from
Industry Rivals
12
The threat of substitute products has increased in the banking industry, as companies outside the industry have
begun to offer specialized financial services that were traditionally only available from banks. Examples of such
substitute products include payment processing and transfer services. The intrusion of these substitute services has
cost both ACB and the other major banks considerable revenue.
The Bargaining Power of Suppliers
Capital is the primary resource on any bank and there are four major suppliers of capital in the industry.
• Customer deposits.
• Mortgages and loans.
• Mortgage-backed securities.
• Other financial institutions’ loans
By utilizing these four major suppliers, the bank can ensure that they have the necessary resources required to
service their customers' borrowing needs while maintaining enough capital to meet withdrawal expectations. The
power of the suppliers is largely based on the market, their power is often considered to be fluctuated between
medium to high.
The Threat of New Entrants to the Industry
The threat of new entrants as a significant force within the industry is relatively small. The main obstacles for
potential new entrants are the massive amount of capital required, the length of time required to establish a
significant brand identity, and the numerous and cumbersome government regulations that apply to the operation
of banks.
Price 41,453
13
APPENDIX 6: Comparative companies
Company Mkt Cap (Million VND) P/E P/B
BANK TABUNGAN PENSIUNAN
34,768,366 11.35 1.90
NASL
ALLIANCE BANK MALAYSIA BHD 39,909,284 10.89 1.70
Min: 12%
Credit growth Triangular Net interest margin
Max: 15%
Mean: -5%
Interest expense rate Lognormal Interest expense Std: 1%
Location: -7%
Min: 45%
CIR Unit Operating expense
Max: 55%
Mean: 14%
Ke Normal Cost of equity
Std: 1%
14
HOLD:
26.6%
SELL:
1.5% BUY: 71.9%
15
Banking sector earnings structure
Vietnam
Indonesia
Thailand
Japan
Malaysia
Singapore
Canada
United States
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
200.00%
150.00%
100.00%
50.00%
0.00%
16
Banks' branching network
STB
ACB
VPB
TCB
MBB
HDB
SCB
TPB
80%
60%
40%
20%
0%
North Middle South EBT Assets
17
APPENDIX 10: Bank property structure
Type 1 debt Government bonds Other profitable assets Bad debt + Non-profit assets
80.00%
VPB
70.00% ACB
60.00%
HDB TCB STB
50.00%
40.00% MBB
TPB
30.00%
20.00%
10.00%
0.00%
-5.00% 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00% 45.00%
The bubble chart indicates a linear relationship between personal lending and Personal Lending and Total
Operating Income. Retail commercial banks have more ground to grow non-interest incomes with the exposure of
set of their personal customers with banking services.
18
APPENDIX 12: Moody Rating for ACB, MBB, HDB, STB, TPB
Adjusted
Non- LT Counter Counterparty
LT Bank LT Issuer Baseline Baseline
Investment party Risk Risk
Deposits Rating Credit Credit
Grade Rating Assessment
Assessment
Ba1
Ba2
Ba3 ACB MBB ACB MBB
B1 TPB HDB ACB MBB TPB TPB HDB ACB MBB TPB ACB MBB ACB MBB
B2 HDB HDB TPB TPB
B3 STB STB HDB HDB
Caa1 STB STB
Caa2 STB STB
Caa3
Ca
C
Source: Moody
19
APPENDIX 13: ACB’s Brand recognition and popularity
100
80
60
40
20
ACB
VPB
STB
MBB
TPB
SHB
HDB
20
Disclosures:
Ownership and material conflicts of interest:
The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this
company.
The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest
that might bias the content or publication of this report.
Receipt of compensation:
Compensation of the author(s) of this report is not based on investment banking revenue.
Position as an officer or director:
The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the
subject company.
Market making:
The author(s) does not act as a market maker in the subject company’s securities.
Disclaimer:
The information set forth herein has been obtained or derived from sources generally available to the public and
believed by the author(s) to be reliable, but the author(s) does not make any representation or warranty, express or
implied, as to its accuracy or completeness. The information is not intended to be used as the basis of any investment
decisions by any person or entity. This information does not constitute investment advice, nor is it an offer or a
solicitation of an offer to buy or sell any security. This report should not be considered to be a recommendation by any
individual affiliated with Vietnam Organizer Team, CFA Institute or the CFA Institute Research Challenge with regard to
this company’s stock.
21