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Result Update Report: HDB – Sustaining healthy growth

We maintain a neutral view on HDB’s provisioning buffer and advantages on the funding front. However, HDB has an edge in the low-profile retail and SME segments due to its physical network in rural areas, which matches the authorities’ desire. Given the orientation to expand through M&A or private placement and the potential of a competitive upfront fee, we have a positive view on the medium-term stock price performance to some extent. Bancassurance is projected to boost service income growth and account for a higher share thanks to the rising market, high penetration of payroll account, the increase in cross-selling activities and sales expansion in strategic rural areas where HDB dominates. Those new growth driver and catalysts will help the stock price converge towards healthy valuations and act as a counterpressure to future rate hikes.

We think that the current forward P/B is at the sustainable level considering the upcoming monetary policy normalization and NPL formation over a cycle, which the bank is more sensitive than peers. We estimate the stock fair value at VND 32,000/share. With no cash dividend over the next 12 months, total upside should be 36% based on the closing price on July 12^th, 2022. For the medium-term outlook, we have a BUY recommendation.