HO CHI MINH CITY DEVELOPMENT JOINT STOCK COMMERCIAL BANK

Initiating Coverage Sector: Banking HSX: HDB

AMBITIOUS BUSINESS PLAN

12/04/2024
RECOMMENDATION BUY  By the end of February 2024, HDBank's total outstanding credit balance
Fair price 31,000 reached VND 346,506 billion, growing 2.71% compared to 2023, making it
Current price 24,300 one of the banks with high credit growth in the industry.
Upside/downside 28%  We expect 2024 will be better thanks to the improvement of the economy
and recovery of investor sentiment, slightly increasing interest rates, and the
STOCK INFORMATION Government maintaining its loose monetary policies.
Outstanding shares (mil) 2.907  HDB is a bank that benefits from good fundamentals, with a 2024 P/B of
Free float (mil) 2.184 1.5x, PHS projects that the fair value of HDB is 31,000 VND/share. We
Market cap. (billion VND) 69,318 recommend BUY with potential upside of 28%.
3m avg. volume (shares) 8,595,675
Foreign ownership (%) 19.7%
Investment highlight:
First listing date 01/05/2018 The highest Credit growth. Credit growth at the end of 2023 was 31.8%YoY thanks
to participating in restructuring weak banks. Retail loans are high (43.7% of Gross
SHAREHOLDER STRUCTURE loans), thereby bringing HDB's average lending interest rate to 12.7%, higher than
Sovico JSC 14.37% the industry average of 11.1%.
Pham Van Dau 4.31% Outstanding NIM. In terms of capital mobilization, HDB is one of the banks that uses
Nguyen Thi Phuong Thao 3.72% a large amount of capital from the interbank market with more than 21% of the
Nguyen Huu Dang 2.75% capital mobilization. Hence, interest rates in secondary market have decreased
deeply in 2023 (ON-1W term around 0.5 - 1.0%), which maintains the cost
advantage. In addition, HDB is one of the few banks that actively mobilizes capital
KEY ATTRIBUTES from international financial institutions, especially Green bonds with preferential
TTM EPS (VND) 3,555 interest rates.
BVPS (VND) 15,958 Profitability remains stable. By the end of 2023, NIM of HDB would be 5.1%, down
Debt/Equity (%) 7.7% 10 bps compared to 2022. The trend of NIM reduction occurs in most banks in 2023
ROA (%) 2% and HDB is one of the banks with the least decrease. One of the reasons is that HDB
ROE (%) 24.2% has a fairly high risk appetite with a relatively high proportion of medium- and long-
P/E 6.9x term loans (accounting for 47%).
P/B 1.6x Projection for 2024F:
Dividend yield (%)
We project HDB's credit growth in 2024 to be 28%YoY. Receiving the mandatory
credit institution transfer would allow HDB to receive priority from the State Bank in
PRICE PERFORMANCE
allocating credit "room". But PHS maintains a cautious view that growth will cool
60% down compared to last year, partly because the economy's capital needs are still
HDB VN-Index
50% weak (system-wide credit growth as of the end of the first quarter only increased by
40% 0.26%. ).
30% We expect the lending rates would increase slightly, while the deposit rates would
20% rise more slowly. NPLs in 2023 and legal problems in handling collateral would put
10% 0.0% a burden on HDB's asset quality. We project the NPL ratio in 2024 to be 1.97%.
0% Hence, Net Profit in 2024 is projected to be VND 13,140 billion (+27%YoY).
-10%
03-23 07-23 11-23 03-24 Evaluation:
By using P/B and Residual Income, we recommend BUY for HDB at a price of VND
COMPANY PROFILE
31,000 per share, indicating a potential price increase of 28% compared to the
Ho Chi Minh City Development Commercial Joint
Stock Bank (HDB), formerly known as Ho Chi current price.
Minh City Housing Development Bank, was
established in 1989. The bank operates mainly in
the field of capital mobilization and lending.
Credit. HDB was listed and traded on the Ho Chi
Minh City Stock Exchange (HOSE) respectively
from the end of 2017 and early 2018..

ANALYST(S) CHUYÊN VIÊN PHÂN TÍCH

Vy Nguyen Nguyễn Thị Thảo Vy
vynguyen@phs.vn vynguyen@phs.vn

www.phs.vn Bloomberg: PHS <GO> 1

 Business plan in 2024

HDB has announced a business plan with positive growth. Specifically, the planned
NPAT in 2024 is 4% lower than PHS's forecast.
HDB is one of the few banks that has continuously maintained a growth rate of over
20% for many consecutive years, notably in the context that HDB has a Total Asset
of VND 602 trillion by the end of 2023 and plans to raise it to over VND 700 trillion
by 2024.

Financial 2023 PHS’s %2024

2024 Plan % Growth
indicators Actual projection Plan

Total Assets 602,315 700,958 16% 714,529 102%

Total Funds 536,641 624,474 16% 629,073 101%
Gross Loans 353,411 438,420 24% 452,541 103%
Before - tax Profit 13,017 15,852 22% 16,370 103%
Net Profit 10,336 12,601 22% 13,140 104%
ROE 24.2% 24.6% 24.4% 99%
ROA 2.0% 1.9% 2.0% 104%
NPL 1.32% <2% 1.97% 99%

Sources: HDB, PHS compiles

Risks:
(1) Credit risk; (2) Risk from competition; (3) Interest rate risk; (4) Market risk
Summary of financial indicators:
Financial indicators 2021A 2022A 2023A 2024F 2025F

Net Interest Income 13,891 18,012 22,184 29,527 36,352

Non-interest Income 2,867 3,956 4,230 4,100 5,422
Total Operating Income 16,758 21,967 26,414 33,627 41,774
Operating expense (6,383) (8,631) (9,129) (11,499) (14,172)
Provision expenses for
(2,306) (3,068) (4,268) (5,758) (7,706)
credit losses
Before - tax Profit 8,070 10,268 13,017 16,370 19,896
Net Profit 6,453 8,209 10,336 13,140 15,961
NPL ratio 1.65% 1.67% 1.79% 1.97% 2.18%
CASA ratio 13.1% 10.3% 10.9% 12.4% 13.4%

Sources: HDB, PHS compiles

www.phs.vn Bloomberg: PHS <GO> 2

CONTENTS
Highest credit growth in the industry ........................................................................................................................... 4

Funding structure ........................................................................................................................................................ 9

Strong NIM (Net Interest Margin) .............................................................................................................................. 10

Business performance projection in 2024 ................................................................................................................. 15

Evaluation and Recommendation .............................................................................................................................. 16

FINANCIAL STATEMENTS ......................................................................................................................................... 17

www.phs.vn Bloomberg: PHS <GO> 3

 Intiating Coverage | HDB

Highest credit growth in the industry

By the end of 2023, HDB recorded a 23.2% YoY growth in Net Interest
Income to VND 22,184 billion. Non-Interest Income increased by 6.9% YoY
to VND 4,230 billion. As a result, Net profit in 2023 surged by 25.9% YoY to
VND 10,336 billion, making it the bank with the highest profit growth rate in
2023, despite the fact that the banking industry faced many challenges in
2023 with the industry's Net Profit decreasing by 5%.
Figure 1: Net Profit growth of banks Figure 2: HDB’s Net Profit (VND billion)
60% 12 50%

Nghìn tỷ VND
50% 10
40%

40% 8
30%
30% 6
20%
20% 4

10%
2
10%
0 0%
0%
2019 2020 2021 2022 2023
STB HDB VBB LPB BID OCB CTG ACB MBB VCB KLB VIB
Net Profit %Growth

Sources: HDB, PHS compiles Sources: HDB, PHS compiles

The strong growth is supported by credit growth of 31.8% YoY. Loans to

Corporations accounted for 56.3% of Gross Loans, while Retail loans
accounted for 43.7%.
Loans for trade services and real estate accounted for the largest
proportion of the corporate loan portfolio, at 46% and 31.6% of corporate
loans, respectively. HDB had a high proportion of loans to risky sectors,
such as real estate and construction, accounting for 24.1% of Gross Loans
and 13.8% of Total Assets, equivalent to VND 83 trillion (+120% YoY),
ranking among the banks with the largest proportion of Real Estate Loans.
We think HDB's risk appetite increasing over time as the proportion of
loans to the real estate, construction sectors rose from 15% in 2021 to
24.1% by the end of 2023.
By the end of 2023, Retail loan was VND 133.9 trillion. Of which, loans to
household business, mortgage, and loans in rural area account for the
largest proportions of 36.3%, 25% and 29.5% of Retail loan, respectively.
14.4% of total loans was to rural agriculture sector. This enables HDB to
easily access to “low-cost” capital from international organizations, such
as IFC (Internaltional Finance Corporation), and DEG (Development Finance
Institution of the German KFW Reconstruction Bank). In 2023, IFC and HDB
signed the MOU to become strategic partners, aiming to connect and
support the expansion of SMEs, especially in high-tech agriculture industry.
As of the end of February 2024, Total credit was VND 346,506 billion, an
increase of 2.71% compared to 2023. The bank has focused on disbursing
loans to the following sectors: Processing and manufacturing industry of
nearly VND 5,000 billion; Construction of over VND 4,000 billion;
Transportation and warehousing of over VND 5,000 billion; Agriculture and

www.phs.vn Bloomberg: PHS <GO> 4

 Intiating Coverage | HDB

forestry nearly of VND 4,000 billion; Subcontracting and household lending

of nearly VND 12,000 billion.
Figure 3: Credit growth of banks Figure 4: Lending Structure by Customer Segment
35.0%
2.6% 4.7%
30.0%
25.0%
CMB/SME
20.0%
Retail
15.0%
39.0% 53.7%
10.0% CIB

5.0% Consumer finance

0.0%
TCB

CTG
HDB

ABB

ACB
LPB
MSB

SSB
BID
MBB

KLB
VPB

TPB

VIB
OCB
VBB

Sources: HDB, PHS compiles Sources: HDB, PHS compiles

Figure 5: Breakdown of retail loans in 2023 Figure 6: Breakdown of loans to enterprises in 2023
0.20%

9.30%
13.20%
Household business Services and
36.3% commerce
Mortgages Agriculture 46%
29.20%
Rurals
Manufacturing 31.60%
Individuals
Real estate
Automobiles

25.0%
6.10% 3%

Sources: HDB, PHS compiles Sources: HDB, PHS compiles

Figure 7: Loans for construction and real estate by banks

200 40%
VND Billion

180 35%
160
30%
140
120 25%

100 20%
80 15%
60
10%
40
20 5%

0 0%
TCB VPB HDB SHB NAB MSB TPB MBB SSB ACB VIB
Construction & Real Estate 2023 Construction & Real Estate 2022 %Gross Loan 2023 %Gross Loan 2022

Sources: HDB, PHS compiles

Moreover, the mandatory transfer of credit institutions contributes to

supporting HDB's credit growth. Being prioritized by the SBV in allocating
credit room becomes a big advantage for the Bank. Furthermore, the bank

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 Intiating Coverage | HDB

receiving the mandatory transfer is not financially harmed because it does

not have to consolidate financial statements and is not responsible for the
liquidity and financial obligations of the target bank. If the mandatory
transfer process goes smoothly, target banks would escape losses after 8-
9 years. At that time, HDB would shorten the process of expanding its scale.
However, since HDB has contributed charter capital of nearly VND 9,000
billion to the target bank, the process of completing the restructuring plan
may take longer than expected.

Short-term loan accounts for the largest proportion in loan portfolio - 53.4%
of Gross Loans, equivalent to VND 183 trillion, higher than the industry
average of 49.2%. Moreover, Gross loan subject to interest rate repricing
period within 1 year accounts for up to 90% of the Gross Loans to
customers. This shows that the bank is highly sensitive to market interest
rates and could easily take the initiative in controlling NIM.

Figure 8: Customer loans in interest rate repricing time

Over 5 years

Over 1 year - 5 years

Over 6 month - 12 months

Over 3 month - 6 months

Over 1 month - 3 months

Till 1 month

Overdue

0 50 100 150
Units: VND Billion

Sources: HDB, PHS compiles

Figure 9: Breakdown of loan by maturity Figure 10: Outstanding short-term loans at banks
80%

19.4%
60%

53.4% 40%
27.2%

20%

0%
Short-term Loans Middle-term Loans Long-term Loans
EIB ACB BID CTG STB VCB NAB HDB MBB BAB MSB SHB LPB

Sources: HDB, PHS compiles Sources: HDB, PHS compiles

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 Intiating Coverage | HDB

Hình 11: Ratio of short-term funds for medium and long- Hình 12: Ratio of short-term funds for medium and long-
term loans of HDB Over the years term loans
35% 60%

30% 50%
25%
40%
20%
30%
15%
20%
10%

5% 10%

0% 0%
2019 2020 2021 2022 2023 EIB TCB SHB VIB MBB VPB MSB OCB HDB BID CTG ACB

Sources: HDB, PHS compiles Sources: HDB, PHS compiles

Corporate bonds grew strongly by 133% YoY to VND 10,036 billion,

equivalent to 1.7% of Total Assets in 2023, after a sharp decline in 2022.
This was close to the value of corporate bonds that the bank held in 2020
and 2021. The increase in corporate bonds contributed VND 5,735 billion,
equivalent to 6.7%, to credit growth. Hence, HDB became one of the 7 banks
with the highest corporate bond value in banking sector.

We believe that HDB faces significant corporate bond risks due to its large
value of corporate bonds, especially in the context of increasing corporate
bond maturity pressure in 2024. However, recently, the SBV has drafted a
new Circular, which would abolish the regulation prohibiting credit
institutions from buying back corporate bonds within 1 year after selling
them. This would allow firms to postpond its bond payment, creating
conditions for credit growth, but raising the risk of NPL and potential debts
for the banking industry.

Figure 13: Credit growth breakdown Figure 14: HDB’s corporate bonds over the years
12 150.0%
6.7%
Nghìn tỷ VND

10 100.0%
Gross Loans
8
Corporate bonds 50.0%
6
0.0%
4

93.3% 2 -50.0%

0 -100.0%
2019 2020 2021 2022 2023
Corporate bonds %Growth

Sources: HDB, PHS compiles Sources: HDB, PHS compiles

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 Intiating Coverage | HDB

Figure 15: Corporate bonds held by banks in 2023

Corporate bonds %Total assets

6% 45,000

40,000
5%
35,000

4% 30,000

25,000
3%
20,000

2% 15,000

10,000
1%
5,000

0% 0
TCB MBB VPB STB TPB VCB HDB SHB BID CTG OCB BAB MSB VIB SSB

Sources: PHS compiles

At the end of Q4 2023, HD Saison's loans reached VND 16.1 trillion (-

4%YoY), equivalent to 4.7% of HDB's outstanding loans. Of which, money
loans, consumer durable loans and motorbike loans account for the largest
proportions of 54%, 24% and 21% respectively. HD Saison's NPL as VND 1.2
trillion, equivalent to a bad debt ratio of 7.61% at the end of 2022, up from
7.11% at the end of 2022.

Figure 16: Loans by segments of HD SAISON Figure 17: NPL of HD SAISON

1% 1.6 8.0%
Nghìn tỷ VND

7.8%
Motorbike
21% 1.2 7.6%
Consumer durables
Cash 7.4%
0.8
Others 7.2%
54%
24% 7.0%
0.4
6.8%
0.0 6.6%
Q4 2022 Q1 2023 Q2 2023 Q3 2023 Q4 2023

Sources: HDB, PHS compiles Sources: HDB, PHS compiles

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 Intiating Coverage | HDB

Funding structure
In 2023, Total Deposit was over VND 370 trillion, a strong growth of 72%,
and accounted for 70% of capital mobilization structure. Deposit
mobilization structure was skewed towards the retail segment (accounting
for 73.4%), while corporate deposits only accounted for 26.6%.

Figure 18: Capital mobilization structure Figure 19: Customer deposit by customers

6.20%
10.0%
Interbank
21.0%
Customers deposit CIB CMB Retail 20.00%
Valuable papers
73.40%
70.0%

Sources: HDB, PHS compiles Sources: HDB, PHS compiles

This would support bank liquidity. At the end of 2023, Net LDR (Loan-to-
Deposit) ratio was 65.5%, lower than the industry average of 85%, indicating
that the bank has room to expand NIM in 2024.

Figure 22: Pure LDR ratio Figure 21: Pure LDR of banks
80% 130%

120%
70%
110%
60%
100%

50% 90%

80%
40%
VIB
VCB

BID

MBB

MSB
EIB

SHB

TPB
ACB

OCB
LPB
TCB
NAB

CTG

SSB
HDB
STB

VPB

2019 2020 2021 2022 2023

Sources: HDB, PHS compiles Sources: HDB, PHS compiles

HDB is one of the largest issuers of valuable papers. At the end of 2023,
HDB's value papers was VND 50.9 trillion (+15% YoY), accounting for 10%
of the capital mobilization structure, higher than the industry average of
7.3%. The capital mobilized from valuable papers provided Tier 2 capital,
raising the bank’s capital buffer. At the end of 2023, CAR ratio was 12.6%.
We think that HDB has used 25% of the tier 2 capital mobilization limit
(100% of tier 1 capital according to Circular 22). So, HDB has the limit to
continue issuing in 2024 in the context of low interest rates. HDB
successfully mobilized VND 3,000 billion, supplementing tier 2 capital in
March 2024.

www.phs.vn Bloomberg: PHS <GO> 9

 Intiating Coverage | HDB

HDB has Rates paid on deposits of 6.79%, among the highest in the industry
although the banking system continuously sharply reducing deposit rates.
The goals for keeping high rates are:
(1) HDB issues many bonds to mobilize capital, with a reference rate of 12-
month interest rate.
(2) In addition, to boost Gross Loans, HDB is forced to increase mobilization
to meet ratios, such as LDR and the ratio of short-term capital for medium
and long-term loans.
Figure 22: The proportion of valuable papers issued in
Figure 23: HDB’s CAR over the years
the capital mobilization structure of banks
30% 16%

14% 13.4%
12.5% 12.3% 12.3% 12.6%
12%
20%
10%

8%
10% 6%

4%

2%
0%
0%
Q4 2022 Q1 2023 Q2 2023 Q3 2023 Q4 2023

Sources: HDB, PHS compiles Sources: HDB, PHS compiles

Strong NIM (Net Interest Margin)

Figure 24: HDB’s Yield on Interest-Earning assets and Figure 25: Average yield on investment securities and
Cost of Funds over the years balance of investment securities over the years
14% 70 7.0%
VND Billion

12% 11.8% 60 6.0%

10% 50 5.0%
9.5% 9.3% 9.5%
8.4% 40 4.0%
8%
6.8% 30 3.0%
6%
5.0% 4.6% 20 2.0%
4% 4.0% 4.4%
10 1.0%
2%
0 0.0%
2019 2020 2021 2022 2023
2019 2020 2021 2022 2023
Investment securities
Yield on Interest-Earning Assets Cost of Funds
Interest on investment securities (%)

Sources: HDB, PHS compiles Sources: HDB, PHS compiles

At the end of 2023, NIM was 5.1%, down 10 bps compared to 2022.
Although affected by high interest rates at the end of 2022, which
caused NIM to decline at the end of 2023, HDB has maintained and
promoted its strengths in terms of diversified asset structure and low-
cost capital to become one of the leading banks in terms of NIM,
because:

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 Intiating Coverage | HDB

(1) Thanks to its high retail lending balance (43.7% of Gross Loans),
average lending rate was 12.7%, higher than the industry average of
11.1%.
(2) Yield on Investment Securities rose sharply to 5.91%, compared to
4.87% at the end of 2022, thanks to the increase in holding of corporate
bonds, as mentioned above. The investment securities declined by
9.6% YoY to VND 44 trillion. Of which, government bonds declined by
36% YoY to VND 17.3 trillion, bonds issued by domestic credit
institutions remained at VND 16.5 trillion, while corporate bonds soared
133% YoY to VND 10 trillion.
(3) Benefit from the SBV's loosening monetary policy trend from the
beginning of 2023 to the present. The fact that the State Bank of
Vietnam continuously cuts interest rates in 2023 along with
continuously maintaining low interest rates afterward supported banks
specializing in using capital from secondary market to benefit in terms
of Cost of Funds, typically HDB. Interbank rates have continuously
decreased and maintained around 0.5 - 1.0% for the 1W term, which
enables HDB reduce capital mobilization costs from secondary market
to around 3.03%. This reduced Costs of Funds to 6.79%. In 2023,
besides IFC, HDB became one of the first banks in Vietnam to
successfully sign a cooperation agreement with ADB on Environmental
and Social Management System. The total limit for Trade Finance
Guarantee and Revolving Credit Facility granted to HDB has increased
from USD 125 million to USD 145 million as of early 2023. Moreover,
thanks to the compulsory receiving of a credit institution, HDB benefits
from lending rate of 0% from the SBV. We project HDB's NIM in 2024 to
be 5.13%.

Figure 27: Proportion of capital mobilization from the

Figure 26: Average lending rate of banks in 2023
secondary market of the banking industry
16.0% 40.0%

12.0% 30.0%

8.0% 20.0%

4.0% 10.0%

0.0% 0.0%
HDB

SGB

TCB
HDB

CTG
BAB

LPB

ACB

ABB

LPB
ACB
VCB
SHB

MSB

MSB
VPB

VIB

TPB

NVB

SSB
MBB

SSB
VIB
TPB
VPB

MBB
STB
KLB

KLB
OCB

VBB

VBB

OCB

Sources: HDB, PHS compiles Sources: HDB, PHS compiles

Thanks to its outstanding NIM, HDB is one of the 3 banks with the highest
ROE in the industry, 24.2% at the end of 2023, a slight increase of 70 bps
compared to 23.5% in 2022. This is the bank's highest ROE in the last 5
years.

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 Intiating Coverage | HDB

Figure 28: ROE and NIM of banks in 2023

ROE NIM
6% 30%

5% 25%

4% 20%

3% 15%

2% 10%

1% 5%

0% 0%
ACB VIB HDB MBB VCB BID LPB STB CTG MSB OCB TCB SHB TPB SSB KLB EIB
Source: PHS compiled

Asset quality

At the end of 2023, the Non-performing Loans was VND 6,160 billion, up
40% YoY. Of which, retail accounted for 60.9% of NPLs, followed by
consumer finance (19.9% of NPLs, equivalent to VND 1,226 billion) and
corporations (19.2% of NPLs, equivalent to VND 1,183 billion). The NPL
ratio was 1.79%, up 12 bps compared to the end of 2022. PHS believes that
HDB's asset quality has the following concerns:
(1) Banks increased lending to real estate and construction, while the first
quarter did not witnessed many positive results in handling NPLs;
(2) HDSaison's NPLs belongs to the difficult-to-recover loan segment;
(3) The general economy is still not positive currently, while the corporate
bond and debt portfolio is not undergoing significant recovery.
(4) Government Bond interest rates have bottomed and tend to rise again,
which affects the value of HDB's Bond portfolio.
However, we believe that HDB's ability to collect NPLs in 2024 would
improve thanks to expectations of recovery in the real estate market and
consumer finance segment.

At the end of 2023, Loan Losses Coverage ratio was 65.8%, down from
70.4% at the end of 2022, although HDB increased its Provision expense for
credit risk by 39.1% YoY to VND 4,268 billion, equivalent to 16.2% of Total
Operating Income. As a result, the ratio of Provision expense for credit risk
/Customer Loans was maintained at 1.18% compared to 2022.

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 Intiating Coverage | HDB

Figure 29: Loan Losses Coverage ratio, NPL ratio, Credit

Figure 30: NPLs by industry
risk provision expense/Gross loans
100% 2.0%

80% 1.6%
Retail
60% 1.2% 19.20%
Consumer finance
40% 0.8%
Corporate 19.90%
60.90%
20% 0.4%

0% 0.0%
2019 2020 2021 2022 2023
Loan Losses Coverage Ratio (LHS)
NPL ratio (RHS)
Credit cost/Gross Loans (RHS)
Sources: HDB, PHS compiles Sources: HDB, PHS compiles

Figure 31: NPL ratio of banks in 2023

6%
2023
5% 2022

4%

3%

2%

1%

0%
VCB CTG TCB ACB LPB BID MBB HDB SSB TPB NAB STB OCB EIB MSB SHB VIB VPB

Source: PHS compiles

Figure 32: Loan Losses Coverage ratio of banks in 2023

350%
2023
300%
2022
250%

200%

150%

100%

50%

0%
VCB BID CTG BAB MBB TCB LPB ACB SSB STB SHB HDB OCB TPB MSB VPB NAB VIB

Source: PHS compiles

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 Intiating Coverage | HDB

Non-interst income

At the end of 2023, Non-Interest Income grew by 6.9% YoY, driven by growth
in investment securities trading and foreign exchange trading. Interest
Income from investment securities trading rose sharply by 273% YoY to
VND 1,167 billion, accounting for 28% of Non-Interest Income, while Interest
Income from foreign exchange trading soared 322% YoY to VND 565 billion,
accounting for 13% of Non-Interest Income. Thanks to the trend of
loosening monetary policy, the foreign exchange market and bond market
both have favorable developments, assisting HDB to record positive
results.
HDB has increased Interest recognition from Government Bonds. As
mentioned above, the government bond portfolio decreased by 36% YoY to
VND 17.3 trillion, equivalent to 2.9% of Total Assets.
Revenue from Bancassurance reduced 31%YoY because In 2023, HDB
terminated its cooperation with Dai-ichi Life Vietnam in distributing life
insurance products, ending after 8 years of cooperation. The management
said they were looking for a bancassurance partner in 2023-2024. This
would open up opportunities for the bank to increase Non-Interest Income
in the future. However, the recent bancassurance crisis would hinder the
search for a partner in the short term.

Figure 33: Net Profit from trading investment securities

Figure 34: Profits from foreign exchange of banks in 2023
of banks in 2023 (VND Billion)
3,000 6
VND Trillion

2,500 5

2,000 4

1,500 3

2
1,000

1
500
0
0
BID

VIB
VCB

MBB

MSB
TPB
CTG

ACB

EIB
LPB

SHB
NVB
SSB

OCB

TCB
STB

HDB

BID ACB HDB TCB TPB OCB MSB BAB MBB VPB SSB

Sources: HDB, PHS compiles Sources: HDB, PHS compiles

2022 2023 %YoY

Income from payment services 844 723 -14.3%

Profits/(losses) from FX 134 565 321.6%

Profits/(losses) from securities investment 313 1,167 272.8%

Revenue from bancassurance 2,033 1,396 -31.3%

Other incomes 632 310 -50.9%

Non-Interest Incomes 3,956 4,230 6.9%

www.phs.vn Bloomberg: PHS <GO> 14

 Intiating Coverage | HDB

Business performance projection in 2024

Units: VND Billion 2023A 2024F %YoY Explanation

We expect the credit growth to remain high in 2024 thanks to (1) Vibrant
economic activity again. Lending to small and medium enterprises and
retail lending accounts for a high proportion in the credit structure, which
would benefit from the economic recovery. (2) Receiving the mandatory
Credit growth 31.80% 28.00% -3.8% credit institution transfer would help HDB receive priority from the SBV
in allocating credit "room", thereby increasing credit growth.
However, we believe that HDB will likely lower the volume of corporate
bonds held, thereby affecting credit growth.

PHS expects the State Bank to continue to maintain loosening policy in

H1 2024, interest rates would increase slightly in H2 2024. Thanks to (1)
NIM 4.98% 5.13% 15 bps the impact of interest rate reduction in 2023 and prolonged low interest
rates in 2024 , (2) deposit interest rates decrease faster than lending
interest rates, NIM 2024 is projected to improve by 15 bps to 5.13%.

Net Interest Income 22,184 29,527 33%

Non-Interest Income 4,230 4,100 -3.1%

We expect HDB would continue to maintain strength in international and

domestic payment activities thanks to digital transformation. In 2024,
Income from Service HDB would no longer record bancassurance revenue because
2,188 1,762 -19.5% bancassurance activities with Prudential ended in 2023. However, the
payments
bank would actively find partners in 2024, we will update when
information is available.

Profits/(Losses) from FX 565 550 -2.7% We expect foreign exchange business activities to cool down in 2024.

Profits/(Losses) from
42 42 0.0%
trading securities

Profits/(Losses) from We expect investment securities trading activities to cool down in 2024..
1,167 1,173 0.5%
investment securities

Other profits 259 564 117.8%

We think that HDB maintains CIR around 34% thanks to digital

Operating expense (9,129) (11,499) 26.0% transformation projects that save banks operating costs.

Provision for credit losses

(4,268) (5,758) 34.9%
expense

Net Profit 10,336 13,140 27.1%

(1) PHS hopes that the State Bank of Vietnam would continue to extend
Circular 02 on postponing NPLs, which would reduce debt pressure on
banks and businesses. However, due to
NPL ratio 1.79% 1.97% 18 bps (2) NPLs in 2023 continues to put a burden on HDB's asset quality;
(3) The banking system faces problems when Circular 42 expires, while
the law on credit institutions has not fully legalized Circular 42, causing
difficulties in handling NPL.

The Loan Losses Coverage ratio improved slightly thanks to (1) Circular
Loan Losses Coverage 02/2023/TT-NHNN allowing commercial banks to set aside at least 50%
65.8% 66.5% 0.7% and 100% of the specific provision amount that must be made in 2023
ratio
and 2024. ( 2) Economic activity recovers.

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 Intiating Coverage | HDB

Evaluation and Recommendation

Using the Residual Income and P/B valuation methods, we determine a fair
price for HDB at VND 31,000 per share, corresponding to forward P/E and
P/B multiples of 6.7x and 1.5x, respectively. Hence, we recommend Buy for
HDB, with upside of 28% compared to the current price.

(Units: VND Billion) 2024E 2025E 2026E 2027E 2028E

Cost of Equity 14.5% 14.5% 14.5% 14.5% 14.5%

Cost of Equity in the long-term 14.5%

Perpetuity growth rate after 2028 3.0%

Net Income 13,140 15,961 18,567 20,337 21,846

Residual Income 6,412 7,366 7,696 6,812 5,411

Present value of Residual Income (5 years) 5,578 5,598 5,079 3,951 27,476

Present value of Terminal Value 24,717

Present value of RI and Terminal value 47,682

Shareholder’s Equity 46,400

Number of shares outstanding (billions) 2.908

Fair price (VND/CP) 32,357

P/B Method

Book value per share 20,386 Residual Income P/B Giá hợp lý
Fair price
LTM P/B 1.27x 32,357 25,890
(VND/share) 31,000 VND/cp
Fair price (VND/CP) 25,890 Weight 80% 20%

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 Intiating Coverage | HDB

FINANCIAL STATEMENTS
VND Billion
Income Statement 2021A 2022A 2023A 2024F 2025F
Interest income 26,176 33,323 52,641 56,946 71,293
Interest expenses (12,285) (15,312) (30,457) (27,419) (34,941)
Net interest income 13,891 18,012 22,184 29,527 36,352
Net fees and commission income 2,867 3,956 4,230 4,100 5,422
Total operating income 16,758 21,967 26,414 33,627 41,774
Operating expense (6,383) (8,631) (9,129) (11,499) (14,172)
Net operating income before provision 10,375 13,336 17,285 22,128 27,602
Provision for credit losses expense (2,306) (3,068) (4,268) (5,758) (7,706)
Profit before tax 8,070 10,268 13,017 16,370 19,896
Taxes expense (1,616) (2,059) (2,681) (3,230) (3,935)
Net Income 6,453 8,209 10,336 13,140 15,961
Balance Sheet

Cash and cash equivalent 2,446 2,938 2,810 2,929 3,037

Balance with State bank 11,848 11,273 41,482 40,834 44,469
Balance with other credit institinstitutions 55,943 49,132 96,515 96,515 96,515
Trading securities 11,198 1,798 18,691 20,549 22,593
Loans to customers 203,211 263,856 343,404 442,998 569,467
Allowance for loans to customers (2,452) (3,102) (4,054) (5,803) (8,176)
Investment securities 65,513 48,789 44,092 54,155 66,187
Capital contribution, long-term 124 144 144 144 144
Fixed assets 663 632 713 756 801
Other assets 25,415 40,128 57,809 60,699 63,734
Total Assets 374,612 416,273 602,315 714,529 859,569
Total Liabilities 343,821 377,278 555,915 655,254 784,598
Due to Government and State 93 10,821 27 44 57
Deposits and borrowings from others 107,243 92,653 112,087 121,946 131,535
credit institution
Deposits from customers 183,283 215,797 370,778 443,853 542,310
Valuable papers issued 42,756 44,162 50,938 60,419 73,091
Other liabilities 10,448 13,844 22,085 28,992 37,605
Shareholder’s equity 30,790 38,995 46,400 59,275 74,971
Total Liabilities and Shareholder’s equity 374,612 416,273 602,315 714,529 859,569

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 Intiating Coverage | HDB

Growth indicators 2021A 2022A 2023A 2024F 2025F

Credit growth 13.4% 25.6% 31.8% 28.0% 28.1%
Deposits from customers 5.0% 17.7% 71.8% 19.7% 22.2%
Net Interest income growth 16.8% 29.7% 23.2% 33.1% 23.1%
Non net Interest income 52.3% 38.0% 6.9% -3.1% 32.2%
Total operating income 21.6% 31.1% 20.2% 27.3% 24.2%
Profit before tax 38.7% 27.2% 26.8% 25.8% 21.5%
Total asset 17.4% 11.1% 44.7% 18.6% 20.3%
Interest-Earning Assets 16.3% 10.7% 41.0% 20.6% 22.2%
Interest-Bearing Liabilities 17.3% 9.0% 46.9% 17.3% 19.3%
Financial Indicators 2021A 2022A 2023A 2024F 2025F
Profitability

NII to TOI 82.9% 82.0% 84.0% 87.8% 87.0%

NNII to TOI 17.1% 18.0% 16.0% 12.2% 13.0%

Gross profit margin 38.5% 37.4% 39.1% 39.1% 38.2%

ROAA 1.9% 2.1% 2.0% 2.0% 2.0%

ROAE 23.3% 23.5% 24.2% 24.4% 23.4%

Operating ratio

Cost to Income 38.1% 39.3% 34.6% 34.2% 33.9%

Loans to Deposits ratio (*) 63.3% 75.2% 65.5% 71.3% 76.5%

Net Interest Margin (NIM) 4.47% 5.12% 4.98% 5.1% 5.2%

Non-Interest Margin (NNIM) 0.9% 1.1% 0.9% 0.7% 0.8%

CASA ratio 13.1% 10.3% 10.9% 12.4% 13.4%

NPL ratio 1.65% 1.67% 1.79% 1.97% 2.18%

(Sources: HDB, PHS compiles)

www.phs.vn Bloomberg: PHS <GO> 18

Analyst Certification
The report was prepared by Nguyen Thi Thao Vy, Senior Analyst – Phu Hung Securities Corporation. Each research analyst(s), strategist(s) or
research associate(s) responsible for the preparation and content of all or any identified portion of this research report hereby certifies that, with
respect to each issuer or security or any identified portion of the report with respect to each issuer or security that the research analyst, strategist or
research associate covers in this research report, all of the views expressed by that research analyst, strategist or research associate in this research
report accurately reflect their personal views about those issuer(s) or securities. Each research analyst(s), strategist(s) or research associate(s) also
certify that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendation(s) or view(s) expressed by
that research analyst, strategist or research associate in this research report.

Ratings Definition
Buy = Expected to outperform the local market by >10%
Hold = Expected to in line with the local market by +10%~ -10%
Sell = Expected to underperform the local market by >10%.
Not Rated = The stock is not rated in Phu Hung’s coverage universe or not listed yet.
Performance is defined as 12-month total return (including dividends).

Disclaimer
Phu Hung Securities Corporation does not hold itself responsible for completeness or accuracy of the report. It is not an offer to sell or solicitation of
an offer to buy any securities. Phu Hung Securities and its affiliates, officers, employees may or may not have a position in or with respect to the
securities mentioned herein. Phu Hung Securities (or one of its affiliates) may from time to time perform investment banking or other services or
solicit investment banking or other business for any company mentioned in this report. All opinions and estimates included in this report constitute
are based on the assessments of Phu Hung Securities as of this date and are subject to change without notice.

© Phu Hung Securities Corporation

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