COMPANY ANALYSIS REPORT
Military Commercial Joint Stock Bank (MBB) was established in 1994 with the initial orientation to provide financial services to military enterprises. After more than 30 years of development, MBB has now become the largest bank in terms of assets and credit within the private joint stock bank sector. Following a corporate model, MBB ranks among the top in the industry in terms of customer base, CASA ratio, and business performance.
INVESTMENT THESIS
- High credit growth will be the main driver of profit. After acquiring Oceanbank (MBV), MBB is allowed to grow its credit at a higher rate than the industry average. We expect MBB to achieve its high credit growth target this year due to (1) benefiting from increased infrastructure investment through private capital and (2) the recovery in credit demand from micro and retail businesses. However, we are adjusting the growth forecast down to 25% from the previous estimate of 30% because MBB may transfer a portion of its loans to MBV during the initial restructuring phase, as was done in Q1.
- The bad debt ratio is showing a slight upward trend but remains under control. We believe that MBB's strong credit growth target reflects an increased credit risk. Alongside the impacts of trade instability, we are adjusting the bad debt ratio forecast upward by an additional 0.02 percentage points to 1.64% (compared to 1.54% in the previous report). Additionally, MBB plans to increase its provisioning to raise the coverage ratio of bad debts above 100%. Therefore, we are adjusting the credit provisioning cost for 2025 to 12.674 trillion VND (+30% year-on-year), equivalent to about 1.3% of total outstanding loans.
- We expect income growth from services and the bad debt recovery rate to continue to rise significantly in 2025, with respective increases of +29% and +30% year-on-year. However, profits from investment and foreign exchange trading are projected to decrease compared to the high baseline of 2024, as market interest rate fluctuations will make it difficult to achieve high profits from bond trading activities.
- We forecast that the NIM will decrease slightly by 2 basis points compared to 2024, down to 4.06%. This decline is attributed to (1) pressure to maintain low interest rates and (2) an increasing proportion of short-term loans. However, this will be partially offset by a high CASA ratio and a growing share of retail lending.
We have revised our forecast for pre-tax profit down to 31.495 trillion VND (+9.3% yoy) from the previous estimate of 33.231 trillion VND to reflect the changes mentioned above. EPS=3,615 VND, BVPS = 22,323 VND.
Q1/2025 BUSINESS UPDATE
- Total operating income reached 15.322 trillion VND, a decrease of 7.5% compared to the previous quarter but an increase of 27.5% year-on-year. Of this, net interest income was 11.692 trillion VND (+29% year-on-year), and service income was 1.235 trillion VND (+30% year-on-year). Thanks to operating expenses increasing by only 12% year-on-year, pre-provision operating profit reached 11.372 trillion VND (+33.8% year-on-year).
- Credit growth reached 2.7%, which is lower than the industry average. However, if we account for approximately 30 trillion VND in loans transferred to MBV (the merging bank), the growth would exceed 6.5%.
- The bad debt ratio increased slightly to 1.89% from 1.62% at the end of 2024 due to (1) cyclical factors and (2) a portion of loans being transferred to MBV. The coverage ratio for bad debts decreased from 92% to 75.3%.
Recommendation
OUTPERFORM recommendation with target price of VND28,000/share and an upside potential of 20.4% in 2025.
Valuation
- With a projected P/B ratio of 1.05, MBB's valuation is currently lower than the 5-year average of 1.4 and below the industry average of 1.15, while its operational efficiency remains among the best. From a cautious perspective, we believe a reasonable P/B for MBB is 1.25, which corresponds to a valuation of 28,000 VND per share (a decrease of 3.4% compared to the previous target price).
- Risks: (1) Higher than expected bad debt ratio; (2) Lower than expected credit growth ;(3) NIM decreasing more than forecasted.
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