HDB - Strong profit guidance; robust Q1 results - AGM Note & Earnings Flash

We attended HDB’s AGM on April 26. HDB held its AGM at Galaxy Innovation Hub in Hi-tech Park (District 9, HCMC) for the first time. The meeting’s main agenda was to propose (1) 2024 guidance, (2) dividend plans, and (3) an ESOP issuance.

• 2024 guidance includes profit before tax (PBT) of VND15.9tn (USD634mn; +22% YoY), credit growth of 24% YoY, funding growth (including customer deposits, interbank deposits & borrowings, valuable papers, and borrowed & entrusted funds) of 16% YoY and the NPL ratio to be kept below 1.5%. 2024G ROE and ROA are 24.6% and 2%, respectively. Overall, 2024F profit guidance is in line with our forecast of VND16.0tn (+23% YoY).
• Q1 2024 PBT was more than VND4tn (USD160mn; +46% YoY), completing 25% of our full-year forecast and slightly better than our expectation. Q1 2024 credit growth is around 7%. 
• HDB proposed (1) a FY2023 stock dividend plan of 20% (revised up from 15% in the AGM documents released in early April), (2) a FY2023 cash dividend of 10% par value (VND1,000/share), and (3) an ESOP issuing 20 million shares (equivalent to 0.7% of current outstanding shares). 
• HDB also proposed FY2024 dividend payment plans: total dividends of up to 30% par value, in which cash dividends are up to 15%.
• HDB targets its market capitalization to increase 35% in 2024. 
• Management believes that supporting a weak bank is positive for HDB’s future growth. No specific information regarding the timeline or a detailed plan has been released yet. However, the bank stated that the M&As in the past with Dai A Bank and HD Saison were successful and supported HDB’s growth. Therefore, given its M&A experience in the past, HDB expects the plan to support a weak bank to help the bank expand its network and again supplement its growth as previously.   

HDB released Q1 2024 consolidated results with PBT of VND4.0tn (USD161mn; +47% YoY), achieving 25% of our FY2024 and tracking slightly ahead of our expectation due to (1) stronger-than-expected NII and (2) slightly lower-than-expected provision expenses. We see no major changes to our current earnings forecasts, pending a more extensive review.

• The parent bank’s Q1 2024 credit growth was 6.2% (loan growth of 5.8% and corporate bond growth of 19%). As of Q1 2024, corporate bonds accounted for 3.2% of HDB’s total credit exposure. Breakdown of new disbursements: 30% to construction; 4% to real estate; 28% to manufacturing, processing, agricultural; 20% to wholesale and retail trades; 16% to hospitality services. Additionally, credit to real estate businesses accounted for 17% of the parent bank’s Q1 2024 loan book. 
• According to our estimation, HDS’s 2023 loan book increased 4.2% QoQ to VND16.8tn (USD670mn) — with its loan book contributing 5% to the consolidated loan book. This shows an improvement in HDS’s disbursement in two consecutive quarters. 
• Q1 2024 consolidated deposit growth was 2.2% (2023 deposit growth was abnormally high at 71.8% YoY). The bank stated that customer acquisition via online channels experienced robust growth in the last one year. The Q1 2024 CASA ratio decreased 2.6 ppts QoQ to 8.5%.
• Q1 2024 consolidated NIM was 5.27%, which was higher than our full-year forecast of 4.97%. Q1 2024 NIM decreased 73 bps QoQ from a record high base of 6 % in Q4 2024. We note that Q4 2024 recorded abnormally high interest income partly due to (1) HDB started charging new fee types for credit-related services (i.e., disbursement commitment fee, standby credit limit fee) and (2) changes in the interest income/fee income structure of some LC products, in which the portion of interest income increased vs previously. Overall, we see that the funding cost of HDB has been trending down faster than the IEA yield in the last two quarters given (1) and improvement in LDR and (2) new deposits raised in 2023 to roll over to lower yields.  
• Q1 2024 NOII of VND592bn (-28% YoY) tracked behind our expectation, which could be due to remaining weak bancassurance activities. Q1 2024 gains from trading FX were strong at VND174bn vs a loss of VND50bn in Q1 2023.  
• In Q1 2024, on a quarterly basis, the consolidated NPL ratio increased 45 bps to 2.24%, but Group 2 loans level decreased 52 bps from a high base to 4.72%. We estimate that HDS’s NPL ratio was 7.55% (-7 bps QoQ). However, the Q1 2024 consolidated Group 2 loans level at 4.72% remained high. 
• Q1 2024 annualized credit cost was 1.4% (vs 1.2% in 2023) and consolidated LLR was 56.6% (-9.2 ppts QoQ). Q1 2024 provision expenses completed 20% of our full-year forecast. We expect stronger provision expenses in the remainder of 2024F to control the consolidated NPL ratio to 1.7%. 

Figure 1: HDB’s consolidated Q1 2024 results

Source: HDB, Vietcap — *CASA volume included demand deposits and margin deposits; ** Q1 2023 and Q1 2024 loan and deposit growth is QoQ growth.

Figure 2: HDB’s standalone Q1 2024 results

Source: HDB, Vietcap — *CASA volume included demand deposits and margin deposits; ** Q1 2023 and Q1 2024 loan and deposit growth is QoQ growth.

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