In-Depth Analysis of MBB Bank: A Comprehensive Financial Review

Broker Name: Maybank Securities Limited

Date of Report: November 11, 2024

Overview

MBB Bank, a quasi-state-owned bank in Vietnam, has witnessed a turbulent yet rewarding year. Despite facing challenges with non-performing loans (NPLs) and fluctuating asset quality metrics, the bank has managed to yield substantial returns for its shareholders. This detailed report delves into MBB Bank’s recent performance, key metrics, risks, and future prospects.

Performance Highlights

The 9M24 performance of MBB Bank was a mixed bag, with flat profit growth in 3Q24 and a modest 4% year-over-year increase for the 9-month period. The net interest margin (NIM) fell by 120 basis points to 4.3%, primarily due to a high base in FY23 and competition for quality borrowers. This decline in NIM offset the positive credit growth of 13.3% year-to-date. Provision charges surged by 41% year-over-year, equating to a 1.3% provisioning rate, which weighed down the bottom line.

Asset Quality and NPLs

The bank experienced significant swings in its asset-quality metrics due to retail NPLs related to homebuyers of Novaland and loans to a renewable-energy company. Despite these challenges, MBB Bank’s annualized return on equity (ROE) remained robust at 22%. The bank’s management is optimistic about improving asset-quality metrics starting from 4Q24.

Growth and ROE Projections

With a young and ambitious management team, MBB Bank is well-positioned to push growth and sustain high ROE levels. The bank’s strengths in cost of funds, a robust customer database, and a conducive environment for FY25-26E are expected to stabilize key operating metrics. Credit growth is projected to remain strong at above 20% year-over-year. This could underpin 20-25% profit growth annually, with ROE expected to stay above 21% during FY24-26E.

Long-Term Investment Potential

MBB Bank has been a rewarding stock for long-term investors, generating a 191% cumulative return from 2019 to 2023. In 9M24 alone, the bank’s shares gained 41%, making it one of the top performing bank stocks in Vietnam over the past five years. Despite these gains, MBB Bank’s valuation remains undemanding at 1.1x FY24E P/B and 0.9x FY25E P/B. The potential for a re-rating is supported by robust ROE and the possible upgrade of Vietnam’s stock market to ‘Emerging Status’ by FTSE in 2025.

Future Projections and Valuation

We maintain a BUY rating for MBB Bank, with a 12-month target price of VND 33,800, up 13% from the previous target. This valuation is based on a 5-year average P/B of 1.3x, rolled forward to FY25E BVPS. The valuation is considered undemanding given MBB Bank’s potential to generate over 21% ROE and its strategic positioning to capture growth opportunities in the next cycle.

Risk Factors and Mitigation

MBB Bank faces several risk factors, including potential regulatory and reputation risks related to its consumer finance business and renewable energy loans. The slow recovery in the property sector, particularly the difficulties faced by Novaland, could also pose risks. However, the bank’s management is confident in their ability to manage these risks and maintain growth.

ESG and Sustainability Initiatives

MBB Bank is actively engaged in sustainable financing, with loans to green energy projects amounting to USD 862 million, approximately 7% of its loan book. The bank’s ESG initiatives, including “Green Friday” and “5S” campaigns, promote environmental-friendly practices among its staff. Despite limited ESG disclosure, MBB Bank is recognized as one of the top banks in Vietnam for green financing.

Financial Metrics and Projections

The bank’s financial metrics indicate a strong performance, with steady growth in net interest income and non-interest income. Operating expenses are expected to grow moderately, while pre-provision profit is projected to increase significantly. The bank’s credit growth, deposit growth, and total asset growth are all expected to remain robust over the next few years.

Conclusion

MBB Bank remains a top pick among Vietnamese banks, offering a reasonable risk-reward profile and strong growth potential. The bank’s robust ROE, strong management team, and strategic initiatives position it well for future growth. Investors can expect substantial returns, supported by the bank’s ability to navigate challenges and capitalize on opportunities in the evolving financial landscape of Vietnam.