VIetnam CFA Research Challenge

1. Ngành: Dầu khí | 20 Tháng 09, 2018
CFA Institute Research Challenge
Hosted in Vietnam

2. 2
Valuation Date: October 26th
, 2018
Ticker: ACB (HNX)
Figure 1. Company’s Profile
Source: Bloomberg, Team analysis
Figure 2. Valuation summary
Source: Team analysis, Bloomberg, Company
data
Figure 3. Historical price
Source: investing.com
Market Profile
Closing price VND 28,300
52-week high VND 44,400
13-week average vol 4,251,714
Shares Out. 1,247.5 mil
ROE 20%
Beta 1.1
EPS VND 2,900
PE 10.7
VALUATION
Residual Income
(60%)
VND 41,453
P/B (40%) VND 33,092
Target price VND 38,900
Industry: Regional Banks
Sector: Finance and Insurance and
Credit Intermediation
Recommendation: BUY
Target Price: VND 38,900
INVESTMENT SUMMARY
We issue a buy recommendation on ACB with a target price of VND 38,900, presenting 37% upside
potential on the closing price of VND 28,300 on October 26th
. Our valuation is based on a 60/40
blend of a Residual Income model and a P/B multiple analysis. Our recommendations lay on the
following key catalysts.
BENEFIT FROM ROBUST ECONOMY GROWTH: Lending demand has been surging quickly in ACB’s
most concentrated customer segments – SMEs and personal lenders – Thanks to robust economy
growth in recent years. Substantial GDP growth has encouraged consumer confident, while SMEs
has become the major driver for Vietnam economy growth. With 25 years of experience in the retail
banking segment, ACB converges all crucial advantages to expand its strategic customer set: (1)
intensive geographical network that is highly focus on the southern market, (2) service oriented
with over 200 exclusively designed products and services (3) credible banking brand reputation
trusted by millions of customers. World Bank estimation indicates strong economy growth for
Vietnam is still a head, with GDP growth at 6.58% CAGR from 2018 to 2020, we expect ACB earnings
to grow at 3.6% CAGR during this period.
EFFICIENT ASSET QUALITY MANAGEMENT: ACB has the best asset quality in the industry with
1h2018’s NPL at 0.78%, lower than that of industry average (1.71%) & STB (4.97%) - a bank with
similar market capitalization and business model. ACB outstanding asset quality comes from
prudence in the pre-lending assessment, focusing on secured loans and discretion on real estate
loans. These actions maintain a stable source of revenue, ensure safety in banking operations, limit
risk provisions and therefore increase the company after-tax profit. The success of legacy non-
performing loans and VAMC resolve in 2017 places ACB in an advantageous position. We expect ACB
to save approximately VND 600 billion of bad-debt allowance per year, equivalent to 8.74% profit of
the bank, increasing after-tax profit from 10% to 15%.
HUGE GROUND FOR EXPANSION OF NON-INTEREST INCOME: Non-interest Income (NII) is
expanding rapidly relative to ACB’s Total Operating Income. ACB’s NII has been growing at the
highest speed than ever before, at 213% CAGR during 2016 and 2017 period, outperforms all banks
in the industry. Following the trend of surging demand of consumption and investment, ACB’s
service-oriented strategies has boosted the company earnings significantly. Being the leading retail
bank, ACB still has a huge potential to increase its NII thanks to a large set of personal customers.
In addition, robust growth from services orienting toward SME segment largely contribute to the
future of ACB’s NII. Our analysis forecast ACB’s NII to growth at 25.8% CARG from 2018 to 2020.
2017 2018E 2019E 2020E 2021E 2022E
Net Non-interest Margin 1.22% 0.94% 0.95% 0.96% 0.98% 1.00%
Net Interest Margin 3.48% 3.83% 4.07% 4.30% 4.53% 4.76%
Total Operating Income
Growth
81.01% 24.14% 24.90% 24.92% 24.93% 25.00%
ROA 0.82% 1.13% 1.27% 1.41% 1.58% 1.76%
Asset/Equity 17.21 18.46 18.18 16.50 14.96 13.55
0
4
8
12
16
20
24
0
10
20
30
40
50
Thousands VND
ASIA COMMERCIAL BANK
This report is published for educational purposes only by students competing in the CFA Institute
Global Investment Research Challenge

3. 3
Figure 4. Subsidiaries company
Subsidiary
Nature of
business
ACB Securities
Co. Ltd (ACBS)
Securities
ACB Assets
Management Co.
Ltd (ACBA)
Debt & Asset
Management
ACB Leasing Co.
Ltd (ACBL)
Finance leasing
ACB Capital
Management Co.
Ltd (ACBC)
Fund
management
Source: Company data
Figure 5. Shareholders structure
Source: Company data
Figure 6. Local Countries GDP growth
Source: World Bank Data
BUSINESS DESCRIPTION
Established in 1993, Asia Commercial Joint Stock Bank (ACB) is one of the leading commercial banks
in Vietnam which focuses on retail banking with a wide network of branches and transaction offices
across the country.
MOMENTOUS MILESTONES ACB was the first private Vietnamese bank to issue MasterCard and Visa
international credit cards. In 1997, it managed to implement training programs on banking
operations, which was conducted by foreign bankers and banking specialists, in order to ensure the
bank was employing the most modern banking practices available. In 2005, Standard Chartered Bank
(SCB) became ACB’s strategic partner; as such, ACB benefited from SCB’s comprehensive technical
assistance. Currently, the Bank is considered one of the leading retail banks in the industry, and it is
focusing on positioning itself once again as a Vietnam banking leader.
CORE BUSINESS ACB offers a comprehensive array of financial services in retail banking segment.
With more than 20 years of experience and a large retail customer base, the Bank has been
recognized as a strong brand name in retail banking with a total of 354 branches, more than 11,000
ATM and 850 Western Union Agencies. ACB’s branch network stood at the 3rd place among
Vietnamese Private Commercial Banks. Therefore, ACB is among the most network-intensive banks
comparing with its peers.
WIDE EXPERIENCES IN RETAIL BANKING ACB was established in 1993 with the strategy of focusing
on retail banking right at the beginning. With more than 25 years of experiences, ACB proves that it
is the leading bank in this retail section. In 2017, lending activity of ACB, particularly in the retail
segment, has achieved impressive growth: ACB’s personal loans reached VND109 trillion by the end
of 2017 with an increase of 28% YoY; lending to SME also saw an impressive growth of 16% YoY. In
general, lending for SME account for approximately 22% of the industry’s total loan; While ACB’s
total loan portfolio for individual clients and SME accounts for nearly 89% of the bank’s total loans,
that of 2016 was 85%. These data shows that ACB is continuing to play a leading role for credit
growth of the whole banking sector.
COMPANY STRATEGY
RETAIL BANKING DEVELOPMENT: ACB continues focusing on its customers’ segmentation:
individual and SMEs. At the same time, it plans to optimize the role of branches in the cluster and
region to improve sales productivity, strengthen the process of credit extension and operation for
this process. Despite focusing on retail banking, ACB also has high risk aversion, thus, the Bank
focuses on providing loans that are secured to minimize risk. For example, it mainly provides loans
forfinal users of real estate.
FUTURE BANKING: In 2018, ACB plans to put more efforts on Future Banking from 2020 – 2024
rather than only focusing on bad debts and restructuring strategy from 2012 – 2017 with 3 main
goals:
1. Efficiency improvement: ACB has 34 processes in providing services and solutions for
customers, including 16 and 14 processes for front and back department, respectively.
Currently, headcount expenses of 2Q/2018 account for 21.47% of operation expense. The
processes will be standardized in order to generate more income with fewer human resources,
less paperwork and better quality, which will benefit ACB considerably.
2. Customer base expansion: For future banks, ACB will rapidly expand its customer base by
improving its customer services and developing more advanced products in the period of 2018-
2019. Its target customers will include individuals who are close to existing clients, newly-
established businesses from household businesses & high-level professionals in the industry.
3. Digital Banking: The proportion of online transactions in payments, loans and deposits (which
have been partially implemented through ACB's current mobile application) will be increased,
accounting for 20-22% of total personal transactions. At the same time, automation &
standardization will be put efforts. ACB’s digital banks are expected to increase fee income and
improve CIR and CASA, currently at 15.4% and lower than industry average (MBB: 39%, VCB:
28.3%, TCB: 24.6%, etc.).
LONG-TERM INVESTMENT PROJECT: Priority Banking Project: The project is implemented for
prioritized customer segmentation with superior chain of services, therefore develop effectively the
30%
14%
56%
Foreign Institutions
Domestic Insititions
Domestic Individuals
-2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
Singapore Indonesia
Thailand Myanmar
Vietnam

4. 4
Figure 7. Vietnam GDP growth and forcast
Source: World Bank Data – Team Estimation
Figure 8. Population Demographic
Source: BCG
Figure 9. Nonperforming loans ratio
Source: SBV statistics
Figure 10. Vietnam Internet Demographic
Source: World Bank Data
source of income from them. The project started in early 2015 with a budget of VND 40.62 billion.
Transaction Banking Project: The project is executed in order to increase non-term deposits, non-
credit income from service fees, and to develop credit balance of individual & SMEs through
distributor financing program. The project started in late 2014 with a budget of VND 27 billion.
CUSTOMER ATTRACTION: In order to expand SME customer base, ACB plans to attract suppliers
and distributors of core businesses in the supply chain with reasonable pricing policy for interest
rates and fees. Moreover, ACB applies long-term and synchronous solutions in providing packaging
to customers. Employees of SME clients are also the source of personal payroll through banks, in
which ACB aims to increase sales by upsell methods, credit card loans and other consumer loans.
This segment currently has 1.8 million customers and expected to have 5 million customers by
2019. For upper-class customer bases, ACB plans to increase deposit and income from
bancassurance and credit cards.
MANAGEMENT & GOVERNANCE: Management is the factor that we found extremely appreciable
in ACB. Mr. Tran Mong Hung - ACB's former chairman of the board, his son Tran Hung Huy - the
current chairman of the board and family, have more than 30 years of operating experience in the
banking sector. They have successfully restructured ACB and dealing with bad debt after 5 years
since the incident in late 2012. In addition, they have a mindset for progress when setting a specific
growth plan and new development plans for every year. This is a rare case in the Vietnamese private
banking industry: when at least 90% of the owners do not have banking expertise and they still
manage to run the bank effectively.
INDUSTRY OVERVIEW
MACRO ANALYSIS
Vietnam GDP growth is among the highest comparing with many regional countries (Figure 6).
Recent GDP booming has strongly stimulated the nation economy growth as well as banking
activities. World Bank forecast Vietnam annual GDP to grow at stable rate of 6.71% YoY and 6.51%
YoY in 2018 and 2019. Bank credit will remain the biggest source of lending in the Vietnam economy,
as capital funding from equity and bond market are not yet sufficient comparing to those of some
comparable markets (APPENDIX 8). Upon strong economy growth, Vietnam inflation is expected to
maintain at stable rate of 4% per year.
INDUSTRY ANALYSIS
Banking industry has experienced radical growth in the recent years As Vietnam credit growth is
among the top of the local area, the banking industry has been very exciting. The most significance
highlight of Vietnam banking industry in 2017 is the improvement in assets quality. Non-performing
loan ratio has dropped to 5.40%, at the lowest rate since 2014, and is expected to show further
improvement in 2018 (Figure 9). Meanwhile in 2017, ACB had officialy cleared out of legacy non-
performing loans under VAMC bonds. With credit growth target at 17% YoY in 2018 and expected
to maintain at around 15% YoY in 2019 and 2020 by State Bank of Vietnam, we firmly believe that
banking industry still has many potentials to grow.
DRIVERS
DEMOGRAPHIC
The middle-class and affluent consumers (MACs) will double from 12 million in 2012 to 33 million in
2022, with a CAGR of 12.25% per year, account for 34% of Vietnam population (Figure 8). The MACs
have ability to access cutting edge financial and payment services, and they also have high demand
for personal lending. As a leading bank in personal lending segment, this transition is very favorable
for ACB business.
ROBUST GROWTH OF SME SEGMENT
SME segment expanded at the rate 8.8% CAGR comparing with only 5.3% of big enterprise segment
during the 2012 – 2017 periods. With the occupation rate of 98.1% of all enterprises in Vietnam,
SMEs have become the major driver of the national economy as it contributed 45% of Vietnam GDP
in 2017. SMEs will be the core power of the economy growth in the following years, result in surging
demand for lending. As for ACB, robust growth in SME segment is a great boost in earnings, as SMEs
have already contributed 41.7% of ACB customers’ loan.
EXPLODING RATE OF TECHNOLOGY INFILTRATION
0%
50%
100%
150%
200%
0%
2%
4%
6%
8%
Credit to economy as % of GDP
GDP Growth
Inflation
0
20
40
60
80
100
120
2012 2020
Low income class MAC
0%
2%
4%
6%
8%
Bank nonperforming loans to total
gross loans (%)
Adjusted NPL (reported NPL + VAMC)
0
50
100
150
200
0%
10%
20%
30%
40%
50%
60%
2003
2005
2007
2009
2011
2013
2015
2017
Mobile cellular subscriptions (per 100
people)
Individuals using the Internet (% of
population)
Smartphone penetration

5. 5
Figure 11. Personal Lending on Total Loans
Source: Team Analysis
Figure 12. NII structure of ACB and peer
group (MBB, STB, HDB, VPB)
Source: Team Analysis
Figure 13. ACB Positioning
Source: Team analysis
Figure 14. Asset Quality
Source: Companies data
Technology and internet infiltration are speeding up at significantly in Vietnam (Figure 10). With 38%
of population is using smartphone, more than 50% of population with access to internet in 2017
according to World Bank, customers are having more ability to approach digital banking and financial
services than ever before. Therefore, technology and digital application will be a huge driver of Non-
interest income in the following years.
REGULATION
Regulation has a huge impact on shaping the environment of banking industry. The quality of assets
of banks and financial institutions has been greatly improved with the implication of Resolution
42/2017/Minister-SBV on processing of bad debt. Furthermore, new requiredment of CAR according
to Basel II Standard and short-term deposit for mid-long-term loan ratio ceiling is set to enhance the
industry risk management framework.
TRENDS
RETAIL SEGMENT EXPANSION
Personal lending has expanded significantly in banks’ loans structure in 2017 (Figure 11). Rising
demand for consumer lending and personal loans have attracted many State-owned banks and
commercial banks to take foot in the retail segment. For ACB, retail banking has always been the
core business, especially in strategic locations in the South of Vietnam. Impressive growth of retail
segment is expected to keep on going in the following years.
NON-INTEREST INCOMES
Non-interest income (NII) is growing rapidly among banks, especially in retail- concentrated banks
(Figure 12) (APPENDIX 11). Higher demand for consumption has stimulus transaction and purchasing
activities. In addition to earning from transaction fees, Bancassurance and Trade Financing are other
huge sources of NII in 2017. For ACB, NII-CARG during 2016 and 2017 periods is the highest among
peers, at the rate of 213% YoY. With a large set of retail customers, ACB is highly capables of
expanding NII from this segment.
COMPETITIVE POSITIONING
The Banking Industry is characterized for strong rivalry from competitors and considerable power of
substitution (APPENDIX 4). ACB is the leading bank in retail banking segment. ACB has developed its
network in major cities and industrial areas, especially in the southern market. The southern market
is the most highly populated area in Vietnam with substantial economy growth and high demand of
comsumption and investment. According to General Statistic Office of Vietnam, this area contains
53% of enterprises in Vietnam, including a large amount of SME from various business sectors. ACB’s
success comes from the efficiency in personal lending and SMEs lending. At the same time ACB
provides superior services according to the demand customers.
COMPETITIVE POSITIONING
INTENSIVE NETWORK IN STRATEGIC AREA: ACB is at the 3rd
place among the most intensive
branching private commercial banks in Vietnam, with over 354 branches across the countries. The
southern market, which is account for 78% of ACB earnings, is the most geographically concentrated
area consisting of 57% of ACB branches. For a country where banking penetration is relatively low –
only about 30% of population has bank accounts, according to Oxford Business Group – Intensive
network gives ACB an upper hand in reaching out for new customers. Our research has pointed out
ACB’s geographical advantage compare to the peer group. (APPENDIX 9).
EXCLUSIVE CONCENTRATION IN RETAIL BANKING: ACB highly focus in its core business: Retail
Banking. In terms of assets quality, ACB overwhelmingly outperforms all peer competitors. To
archive this level of quality, ACB focuses on secured loans while many competitor pursuit unsecured
loans from credit consumption. In addition, ACB non-performing loans is highly covered, with
Provision Coverage Ratio (PCR) is at 133.3% in the end of 2017, while peer competitors’ average PCR
is at 82.34%. Among the peer group, Moody gives ACB the highest credit rating (APPENDIX 12).
INHEIRANT OF LEGACY FROM STRATEGIC PARTNERs: ACB has gone through many partnerships with
world leaders in financial and banking, including Standard Chartered Bank and International Finance
Corporation of World Bank. ACB today’s professional and operating capability is largely contributed
by intensive technical assistance from these partners, especially human capital trainings, operational
supports. During the incident in 2012, not only did ACB outstandingly handled the withdrawn of
customers, but the bank managed to recover all the withdrawn under 2 months and got back on
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
2015 2016 2017
SOCBs Peers ACB
-
5,000
10,000
15,000
20,000
25,000
2015 2016 2017
Bancassurance
Recovery from written-off
Other NII
Fee & Commision
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
ACB STB VPB HDB MBB
Group 5 Loans Group 4 Loans
Group 3 Loans Group 2 Loans
NPL Ratio

6. 6
Figure 15. Return on equity
Source: Company data - Team analysis
Figure 16. NIM & NNIM ratio
Source: Company data - Team analysis
Figure 17. Revenues
Source: Company data - Team analysis
Figure 18. CIR
Source: Company data - Team analysis
track after only 5 years to become the leading retail bank in Vietnam. The legacy that ACB inherited
is the priceless distinction between ACB and other competitors.
FINANCIAL ANALYSIS
ROE GROWS IMPRESSIVELY OVER YEARS
Although in period 2014 - 2016, ACB must make a large provision for bad debt from the group of 6
companies, the company was the only bank in the banking system operating stably and maintained
a positive ROE growth over period of 5 years, whose growth rate was the third-highest average in
the industry. In 2015, despite the economy’s difficulties, ACB's ROE still rose from 0.36% to 8.04%,
making it the only bank in Vietnam maintaining positive growths. This shows the efficiency in the
management and operation of the company.
By the end of 2017, after a period of maintenance below the average due to the structural process,
ACB’s ROE jumped from 3.79% YoY to 13.31% YoY, and surpassed the industry average of
13.21%YoY, ranking the third place in the industry in terms of absolute ROE growth. The year 2017
also marked an end of the restructuring process after legacy non-performing loans and VAMC has
been fully processed, resulting in a huge clearance of the bank provision. This will increase the bank's
after-tax profit from 25% to 40% per year, which is expected to increase its ROE in the coming years.
This is shown in the first 6 months of 2018, ACB’s ROE has soared to 20% YoY, far exceeding the
industry average of 16% YoY.
NIM MAINTAINS STABILITY HIGHER THAN AVERAGE
ACB's NIM was stable, at approximately 3.2%, over the past four years, and increased to 3.48% by
the end of 2017, which would be higher than the industry average if VPB’s NIM was removed due to
special characteristic of large proportion of un-secured loan in lending porfolio. Maintaining this
ratio stable over the past 4 consecutive years has shown the bank’s effective performance and the
ratio is expected to improve thanks to (1) Transaction banks help increase demand deposits which
helps lower deposit rate, (2) Continue to promote SMEs banking segment, higher interest rate
loans, (3) Good asset quality and most of loans have secured assets helping to maintain stable
interest income and (4) Credit growth is accelerated in the first haft of the year to increase accrued
interest. The NIM is forecasted to be approximately 3.5% due to (1) higher funding cost and (2)
tightened credit growth in the coming year.
NON-INTEREST INCOME SEGMENT HAS A LOT OF GROWTH POTENTIAL
During the phase of 2016 and 2017, ACB's growth has been on the rise, with 26.7% YoY and
25.8%YoY, respectively, corresponding to 2016 and 2017. Revenue from services to total revenue
ratio decreased as the result of ACB’s strategy, which is to reduce reliance on interest income to
cope with tightening credit policy in the coming years of the State Bank of Vietnam. After 6 months
of 2018, non-interest income of ACB accounts for only 25% of total operating income of ACB, lower
than the average of 30%. The difference comes from the fact that ACB keeps its fee unchanged while
other banks have increased fees for their services by 10-20% in the first quarter. Therefore, ACB still
has room for profit growth by increasing bank fee. By doing that, the bank is expected to earn more
profits from services approximately 200 billion (+25% YoY) per year, accounting for 30% of total
operating revenue.
In addition, bancasurance is becoming more popular, it has become a potential source of profits for
many banks in Vietnam. Currently, only 0.7% of Vietnam's population uses life insurance.
Meanwhile, bancassurance insurance accounts for only 6% of the insurance industry's total revenue,
while the world's share is up to 70%. In present, ACB has not yet signed an exclusive contract with
any insurance company. Moreover, being an experienced retail bank with a large individual
customer base and more than 350 branches and transaction office, ACB can perfectly meet the
diverse customer requirements of insurance companies. As the result, ACB would be able to
negotiate with insurance providers to bring the most benefits to the company. With such
advantages, the average growth rate in revenue from servicing fee expected increase to 25.83% in
the following years.
CIR IS EXPECTED TO DECLINE GRADUALLY IN THE COMING YEARS
ACB's CIR ratio has fluctuated around 62-73% in FY2012 - 2016 as ACB suffered from a huge loss
from forex trading as well as holding about VND 6,500 billion in non-interest-bearing assets. Group
of 6 companies (equivalent to loss of VND 500-600 billion income per year). Another cause is the
restructuring process as well as the effort to change the brand makes this rate improve slowly in the
0%
5%
10%
15%
20%
25%
ACB AVERAGE
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
NIM NNIM
-50%
0%
50%
100%
2015 2016 2017 2018F2019F2020F
Others
Net servicing fee profit
Net interest income
40%
45%
50%
55%
60%
65%
70%
2015 2016 2017 2018F 2019F 2020F

7. 7
Figure 19. Non-Performing Loans Ratio
Source: Team Analysis
Figure 20. Provision coverage ratio
Source: Team Analysis
Figure 21. Cost of equity
Source: Damodaran, HNX, Company Data, Team
analysis, Bloomber
Cost of equity
Risk-free Rate 4.43%
Total market risk
premium
8.91%
Adjusted Beta 1.16
Cost of equity 14.1%
previous period. However, the process will be completed soon, with income returning to growth in
2017 that will help ACB's CIR fall to 54%. In 1Q2018, CIR ratio continued to decrease to 50.8% due
to to the acceleration of interest income with CAGR of 26.4%, higher than the increase in interest
fee. However, from our perspectives, in the next 1-2 years, it is difficult for the CIR of ACB to reduce
in short term due to the investment cost of banking technology and competitive compensation
policy to retain personnel, which requires a lot of funds to invest. In the long term, heavy investment
in techonology will help the bank increase productivity and decrease proportion of staff expenses in
total operation expense. CIR is expected to decline gradually afterward.
GREAT ASSET QUALITY IS A SUSTAINABLE FOUNDATION FOR PROFIT GROWTH.
In 2017, ACB made provisions up to 141.22% YoY (equivalent to VND1.3 trillion), the highest number
in recent years. Therefore, the amount of VND 600 billion of debt related to the G6 remaining from
the second quarter of 2017 has been fully dealt with. At the same time, the entire debt of VAMC
bonds has been completely redeemed by ACB, bringing the outstanding VAMC bonds at zero. As of
31/12/2017, ACB's NPL ratio reached 0.72%, which is lower than industry average (1.65%). After the
first 6 months of 2018, ACB's bad debt ratio increased by 0.06% to 0.78%, making it become one of
the best companies having good quality of asset in the industry. If we include the group of overdue
debt, this rate is only 1%, an impressive number compared to the general level of 4% of the system.
In addition, most of ACB's loans are secured loans, limit real estate loans due to cyclical nature and
high risks of this industry make the quality of its assets has always been maintained and improved,
always is one of the banks having best asset in the industry.
With no further provisioning for bad debts of G6 and debts sold to VAMC, together with a low bad
debt ratio will help ACB save a lot of expenses in the future, contributing to increasing the company's
after-tax profits
VALUATION
We issue a BUY recommendation on Asia Commercial Bank (ACB) with a target price of VND
38,900, representing a 37% upside from the closing price of VND 28,300 per share of October 26th
,
2018. Our target price calculation is based on a mix of the Residual Income to Firm model with a
target price of VND 41,453 and multiple method with the target price of VND 33,092. We
respectively attributed weights of 60% for RI method and 40% to multiples method.
RESIDUAL INCOME METHOD
Because of the unique characteristics of banks' operations, asset value close to market value,
therefore, RI is the most appropriate method of valuation for ACB. This method consists of a two-
stage growth model. The first phase is a one-year forecast to 2022 with the growth rate of loans,
and the second phase is from 2023. Based on our calculation, the estimated price is VND 41,453 per
share. The model is mostly sensitive to the following factors:
• The annual growth rate of credit is stable at 15%YoY in first two years and decrease linearly to
12% in 2022 due to the tight credit control policy of the State Bank of Vietnam in the plan to
control the economy against the risks of the crisis.
• Non-interest incomes are expected to growth at an average annual rate of 10%YoY, contributing
25% to the company's revenue structure.
• The cost of raising capital due to high capital requirements creates competition among banks.
In our assumption, the interest rate expense fluctuates between 4-7%.
• CIR will be reduced and maintained at 50% in the next 5 years
• The cost of equity is calculated under the CAPM model. The 5-year Government bonds, which
reflects risk-free rate, yields 4.3% in October 2018. The estimated cost of equity is 14.10% with
the beta of 1.16 and the total market premium at 8,91% (Damodaran)
MULTIPLE METHOD
We value the company by using P/B method with capitalization equivalent to ACB, operating in the
same sector and in Asian markets in emerging markets, we caculate the average P/B ratio is 1.94.
Price of ACB is trading at VND31,000 comparable to P/B of 1.84. We apply 2019 P/B of 2.18 or target
price of VND33,092, higher to industry average (2.09) thanks to (1) confirmed leading position in
retail banking, (2) good assets quality with no burden in provision expenses - no provision for
group of 6 companies and VAMC debts, (3) have room for profit growth by increasing bank fee and
number of using service per clients.
0%
1%
2%
3%
4%
NPL NPL include VAMC
80%
100%
120%
140%
160%

8. 8
Figure 22. Valuation
Source: Team Analysis
Figure 23. Monte Carlo Simulation
Figure 24. Football Field
Source: Team Analysis
Figure 25. Matrix risk
Residual income method
BVPS 2018 16,260
PV of RI 10,751
PV of Terminal value 14,442
Price 41,453
Multiples method
P/B method 33,092
TARGET PRICE 38,900
B3
M1
C1
M2
B1
C2
B2
L1 M3
MONTE CARLO SIMULATION
Monte Carlo simulation is used to determine the price range of ACB shares when the justified variables
in the valuation model change randomly with different combinations. In our assumption, we use 4
variables:
• Credit growth rate
• Interest expense rate
• CIR
• Cost of equity (Ke)
After analyzing, 80% of outcomes yield share price above current price of VND 28,300 and are in line
with a BUY outlook. With 99% confidence interval, the price will fluctuate within VND 26,720 and
VND 50,800.
SENSITIVITY ANALYSIS
Based on our insights we believe in ACB’s growing potential, so we consider it is essential that we
perform a sensitivity analysis on these primary varaiables of the model. The increase in cost of equity
to 15% and the increase in CIR to 49% can deteriorate company’s revenue and change our
recommendation.
CIR
Ke
-45% -46% -47% -48% -49% -50%
12% 55,379 53,847 52,315 50,783 49,250 47,718
13% 48,699 47,293 45,886 44,480 43,074 41,667
14% 42,791 41,495 40,200 38,904 37,608 36,312
15% 37,522 36,324 35,127 33,929 32,732 31,534
16% 32,790 31,680 30,570 29,461 28,351 27,241
17% 28,515 27,484 26,454 25,423 24,393 23,362
RISK ANALYSIS
MARKET RISK
[M1] Highly cyclical nature (Low probability, High impact)
Bank credit that are highly vulnerable to economic fluctuations. According to our analysis,
correlation of 0.447 between credit growth and GDP growth illustrates profound influence of
economic growth on the industry’s performance. Although the Vietnamese economy in the next
three years has been positively evaluated by World Bank, the team does not exclude the slowdown
and decline of economic growth of Vietnam from 2019, which will lead to lower credit demand
among the sector and directly affect ACB’s credit growth. However, the increasing contribution of
the service segment to the profit margin will mitigate the pressure of profit from credit activities.
[M2] Refinancing Risk (High probability, High impact)
Based on the interest rate risk management model of ACB, the team estimates that the maturity gap
of ACB under the Maturity model is 1.34 and tends to increase, when in 2016 it was only at 0.9. With
the positive maturity gap, ACB will bear refinancing risk when interest rates increase, causing deposit
costs to rise faster than investment returns and reduce the bank’s profits. However, the proportion
of interest-sensitive assets of mostly 1-to-3-month maturity is around 63% of total asset. Those
assets are highly sensitive to the interest rates, on which the fluctuations of market rates will
promptly reflect to limit the refinancing risk of ACB.
[M3] Exchange Rate Risk (High probability, Low impact)
The bank's loans and advances are mainly denominated in VND (94.96%) and USD (4.51%), and non-
USD foreign denomination with the Off-balance-sheet/Total Asset ratio at 17%. ACB also has a risk
20,000
30,000
40,000
50,000
RI P/E P/B
VND
Impact
Probability
Source: Team Analysis
Source: Team Analysis
Figure 24. Sensitivity analysis
Source: Team Analysis

9. 9
Figure 26. GDP growth and Credit Growth
Source: Company data
Figure 27. GDP growth and Credit Growth
Source: Company data
Figure 28. ACB Interest-rate sensitivity
assets
Source: Company data
management strategy when the bank's Board of Directors has set a state quota for each currency,
including gold. Our team assesses that the FX risk will always be under control of the bank and will
have less impact on operating performance of ACB.
BUSINESS AND OPERATION RISK
[B1] Brand Deterioration (Low probability, High Impact)
Because brand is the core competitive advantage of ACB, any failures to manage the brand from
quality, design, marketing plans, and service will materially deteriorate revenue. ACB’s management
team is fully aware of the risk, given by the comprehensive branding strategy and cooperation with
reputational consultant (Value Partners) for effective control Brand Deterioration risk.
[B2] New Entrants Risk (Moderate Probability, Moderate Impact)
Strong competition in the consumer lending segment. Currently, consumer loans are competing
among different banks, especially state-owned commercial banks such as BID, CTG, and VCB, which
are interested in this segment with competitive interest rates. However, ACB's main lending sector
in the South, unlike the state-owned banks in the North, will have little impact on ACB's consumer
lending.
[B3] Management Risk (Low Probability, High Impact)
The senior management team of ACB is competent and experienced in the banking industry and has
especially been with ACB since its inception. With the long-term adherence and recovery of ACB
from the crisis of 2012, it can be said that ACB's senior management team is capable and commits
to ACB in the coming years. However, the team does not exclude management risk as it is pointed
out that in the past, ACB had fallen into crisis with the fault of senior management.
CREDIT RISK
[C1] Asset Quality Deterioration (Low Probability, High Impact)
Our team analysis has shown a correlation of -0.359 between NPL Ratio with GDP growth indicates
that the general NPL ratio of the system and that of ACB will sharply increase when the economy
plunges and will reduce ACB performance. Nonetheless, the strategy of retail lending and the strong
data base of individuals and large SME will contribute to the dispersion of credit risks from small
loans, which is reflected when the overdue debt ratio is at 1.598%. In addition, the NPL-cover ratio
at 133% should help ACB with a strong additional credit security.
[C2] Real Estate Crisis Risk (Low Probability, High Impact)
Vietnam real estate market has recovered significantly compared since the recession period.
However, the team also identified the risk of real estate market downturn when the price of housing
has escalated very large. With the orientation of lending money for real estate to end users, and
only 9% of the disbursement for real estate projects should limit the impact of real estate market
downturn to the operation of ACB.
LIQUIDITY RISK
[L1] Loss of Liquidity Risk (Low Probability, Moderate Impact)
The structure long-term loans accounts for 40.45% while the structure of customer deposits
concentrates in the short term with 69.58% of deposits less than 1 year. The probability for
customers to massively withdraw their deposits at banks is not high, unless the bank encounters
major incidents such as 2012. The team always commented with the structure of capital assets so
the bank facing the risk of losing liquidity, but the probability is not significant and the bank will
balance the structure and solve as ACB had done in 2012.
-10%
0%
10%
20%
30%
40%
50%
GDP growth Credit Growth
0%
2%
4%
6%
8%
GDP growth Bank NPL ratio
0 200
Out of date
Non-interest…
Less than 1 month
1 to 3 months
3 to 6 months
6 to 12 months
1 to 5 years
more than 5 years
Millions
Liabilities Asset

10. 10
APPENDIX
APPENDIX 1: Balance Sheet
(millions VND) 2015 2016 2017 2018F 2019F 2020F
A. ASSETS 201,456,985 233,680,877 284,316,123 321,344,814 367,849,623 421,615,157
Cash and gold 2,806,088 3,541,388 4,851,710 5,834,541 7,016,468 8,437,823
Deposit at central bank 4,608,680 5,119,306 8,314,574 9,235,800 10,259,096 11,395,768
Deposit and loans to other
banks
10,122,200 8,152,027 8,941,727 9,807,927 10,758,036 11,800,184
Held-for-trading securities 100,457 1,183,306 1,236,555 1,292,200 1,350,349 1,411,115
Loans to customers 132,490,987 161,604,426 196,668,756 226,072,806 259,887,464 298,774,321
1. Loans to customers 134,031,804 163,401,221 198,513,394 228,290,403 262,533,964 301,914,058
2. Allowance for loans to
customers
(1,540,817) (1,796,795) (1,844,638) (2,217,597) (2,646,499) (3,139,737)
Invested securities 38,679,144 42,801,465 52,718,405 58,336,993 64,554,396 71,434,433
Long-term investments and
Capital Contribution
208,219 190,194 190,042 190,042 190,042 190,042
Long-lived Assets 2,479,567 2,850,558 3,007,618 3,315,474 3,576,495 3,900,324
1. Tangible Assets 2,054,258 2,338,722 2,474,830 2,381,975 2,403,391 2,512,771
- Cost 3,219,139 3,682,372 4,048,359 4,210,293 4,496,691 4,881,652
- Accumulated Depreciation (1,164,881) (1,343,650) (1,573,529) (1,828,319) (2,093,300) (2,368,880)
2. Intangible Assets 425,309 511,836 532,788 486,128 439,468 451,733
- Cost 597,295 722,821 790,433 790,433 790,433 855,905
- Accumulated Depreciation (171,986) (210,985) (257,645) (304,305) (350,965) (404,172)
Invested real estate 61,921 211,872 256,132 256,132 256,132 256,132
Other assets 9,852,119 8,010,270 8,130,604 8,252,746 8,376,722 8,502,561
B. LIABILITIES &
SHAREHOLDERS' EQUITY
201,456,985 233,680,877 284,316,123 321,344,814 367,849,623 421,615,157
Deposits and borrowings from
other banks
2,433,330 2,235,115 15,453,746 6,707,397 6,906,945 7,158,904
Deposits from customers 174,918,997 207,051,269 241,392,932 286,168,109 327,933,709 375,816,756
Financial debt - - 10,491 - - -
Other borrwed and entrusted
funds
161,678 122,697 136,466 136,532 136,597 136,663
Valuable papers issued 3,075,000 6,615,000 6,761,000 6,921,776 7,086,375 7,254,888
Other liabilities 2,901,457 3,594,080 4,530,641 4,602,838 4,676,185 4,750,701
TOTAL LIABILITES 188,669,444 219,618,162 268,285,277 304,536,651 346,739,811 395,117,911
1. Equities 8,711,240 8,711,240 9,607,514 11,091,389.49 12,200,528.44 13,420,581.28
2. Undistributed profit 1,702,124 2,761,295 3,509,553 5,716,773 8,909,283 13,076,664
TOTAL EQUITY 12,787,542 14,062,716 16,030,847 16,808,162 21,109,812 26,497,246

11. 11
APPENDIX 2: Income Statement
(millions VND) 2015 2016 2017 2018F 2019F 2020F
Interest income and
equivalents
14,081,792 16,448,249 20,319,639 25,329,206 29,549,210 34,461,450
Interest expense and
equivalents
(8,198,265) (9,556,360) (11,861,885) (14,308,405) (16,396,685) (18,790,838)
Net interest income 5,883,527 6,891,889 8,457,754 11,020,800 13,152,525 15,670,612
Net servicing fee profit 745,226 944,382 1,188,331 1,495,296 1,881,555 2,367,591
Profit from FX trading 120,624 230,096 236,729 236,729 236,729 236,729
Profit from HFT securities 14,544 72,083 25,305 25,811 26,327 26,854
Profit from investing
securities
(807,600) (885,963) 603,079 615,141 627,443 639,992
Profit from other activities 242,483 285,204 891,642 285,204 285,204 285,204
Equity investment income 21,485 24,811 36,069 36,069 36,069 36,069
Operating expense (4,021,683) (4,677,889) (6,217,359) (7,197,957) (8,222,292) (9,389,021)
Net Operating income
before credit risk allowance
2,198,606 2,884,613 5,221,550 6,517,092 8,023,561 9,874,030
Credit risk allowance expense (884,455) (1,217,587) (2,565,343) (2,217,597) (2,646,499) (3,139,737)
Pre-tax profit 1,314,151 1,667,026 2,656,207 4,299,496 5,377,061 6,734,293
Total income tax (285,919) (341,852) (538,076) (859,899.14) (1,075,412.30) (1,346,858.51)
Net income 1,028,232 1,325,174 2,118,131 3,439,597 4,301,649 5,387,434

12. 12
APPENDIX 3: Board of Management
Name Since Title
Do Minh Toan 2012 President
Bui Tan Tai 2007 Executive Vice President
Nguyen Thanh Toai 1994 Executive Vice President
Dam Van Tuan 2001 Executive Vice President
Nguyen Duc Thai Han 2008 Executive Vice President
Nguyen Thi Hai 2011 Executive Vice President
Tu Tien Phat 2015 Executive Vice President
Nguyen Thi Tuyet Van 2015 Executive Vice President
Nguyen Van Hoa 2015 Executive Vice President, CFO
Nguyen Ngoc Nhu Uyen 2015 Executive Vice President, Chief Investment Officer
Kollagunta Sreenivasan Gopal 2017 Executive Vice President, Relationship Assistant Director
APPENDIX 4: Five forces analysis
Competition from Industry Rivals
The banking industry is highly competitive. Even though ACB attempts to distinguish itself in the marketplace
primarily on the basis of its long, recognized heritage and experience with SMEs and individual customer base, the
company faces intense competition domestic and global banks.
The Bargaining Power of Consumers
The bargaining power of buyers is quite high because of some reasons. First and foremost, customers have large
number of alternatives as there are so many banks that increase preference for customers. Switching cost are
becoming lower with internet banking gaining momentum and a result of customers loyalties are harder to retain.
Banks provide merely similar services that there are no much diffracted in service provides by different banks so
bargaining power of customers increase.
The Threat of Substitute Products
Competition from
Industry Rivals
The Bargaining
Power of Consumers
The Threat of
Substitute Products
The Bargaining
Power of Suppliers
The Threat of New
Entrants to the
Industry
Five Forces

13. 13
The threat of substitute products has increased in the banking industry, as companies outside the industry have
begun to offer specialized financial services that were traditionally only available from banks. Examples of such
substitute products include payment processing and transfer services. The intrusion of these substitute services has
cost both ACB and the other major banks considerable revenue.
The Bargaining Power of Suppliers
Capital is the primary resource on any bank and there are four major suppliers of capital in the industry.
• Customer deposits.
• Mortgages and loans.
• Mortgage-backed securities.
• Other financial institutions’ loans
By utilizing these four major suppliers, the bank can ensure that they have the necessary resources required to
service their customers' borrowing needs while maintaining enough capital to meet withdrawal expectations. The
power of the suppliers is largely based on the market, their power is often considered to be fluctuated between
medium to high.
The Threat of New Entrants to the Industry
The threat of new entrants as a significant force within the industry is relatively small. The main obstacles for
potential new entrants are the massive amount of capital required, the length of time required to establish a
significant brand identity, and the numerous and cumbersome government regulations that apply to the operation
of banks.
APPENDIX 5: Residual income method
2018 2019F 2020F 2021F 2022F
Projected EPS 1,996 2,819 3,205 3,649 4,573
Projected dividend per share - - - - -
Book value per share 16,260 15,154 17,302 19,744 22,522
Forecast ROE (Based on beginning
book value)
15.06% 21.46% 25.59% 25.52% 25.48%
Cost of equity 14.10% 14.10% 14.10% 14.10% 14.10%
Equity charge 2,293 2,293 2,137 2,440 2,784
Residual income (RI) 527 1,069 1,210 1,789
PV of BV and RI 10,751 4,272 3,805 3,132 1,785
Price 41,453

14. 14
APPENDIX 6: Comparative companies
Company Mkt Cap (Million VND) P/E P/B
BANK TABUNGAN PENSIUNAN
NASL
34,768,366 11.35 1.90
ALLIANCE BANK MALAYSIA BHD 39,909,284 10.89 1.70
BIMB HOLDINGS BHD 33,696,742 9.35 1.24
HDBANK 34,633,229 13.95 2.54
KIATNAKIN BANK PCL 34,335,119 9.83 1.48
TISCO FINANCIAL GROUP PCL 34,220,649 8.80 1.76
SACOMBANK 25,356,649 16.3 1.02
VIETINBANK 91,968,764 11.8 1.36
MILITARY COMMERCIAL JSC
45,369,492 9.7 1.28
TISCO FINANCIAL GROUP PCL 43,551,732 9.83 1.48
HABIB BANK LTD 44,742,659 8.80 1.76
Average 11.78 1.94
APPENDIX 7: Monte Carlo Simulation
Variables Distribution The factor effects Parameters
Credit growth Triangular Net interest margin
Min: 12%
Max: 15%
Interest expense rate Lognormal Interest expense
Mean: -5%
Std: 1%
Location: -7%
CIR Unit Operating expense
Min: 45%
Max: 55%
Ke Normal Cost of equity
Mean: 14%
Std: 1%

15. 15
Statistics Forecast values
Trials 100,000
Base Case 40,191.49
Mean 38,766.62
Median 38,685.71
Mode -
Standard Deviation 4,988.59
Variance 24,886,020.45
Skewness 0.0365
Kurtosis 2.70
Coeff. of Variability 0.1287
Minimum 14,076.83
Maximum 62,397.63
Range Width 48,320.80
Mean Std. Error 15.78
APPENDIX 8: Vietnam Banking sector under comparison
BUY: 71.9%
SELL:
1.5%
HOLD:
26.6%
73.40%
-18.50%
-7.70%
0.40%
-20.0% 0.0% 20.0% 40.0% 60.0% 80.0%
CIR
Ke
Int exp rate
Credit growth
Sensitivity: ACB's price (RI method)

16. 16
Source: Bao Viet Security Company, 2017
Source: Asian Development Bank, 2017
APPENDIX 9: ACB and peers’ geographical network (Excluding State-owend
commercial banks)
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
United States
Canada
Singapore
Malaysia
Japan
Thailand
Indonesia
Vietnam
Banking sector earnings structure
Net interest income Profit from service activities Others
0.00%
50.00%
100.00%
150.00%
200.00%
250.00%
Corporate Financing (% of GDP)
Corporate Bonds Stock Market Bank Credit

17. 17
Source: Data filings
Source: Data filings Source: Data filings
0 100 200 300 400 500 600
STB
ACB
VPB
TCB
MBB
HDB
SCB
TPB
Banks' branching network
ACB's network distribution
North Middle South
0%
20%
40%
60%
80%
100%
EBT Assets
ACB's earnings and assets
distribution by geography
North Middle South

18. 18
APPENDIX 10: Bank property structure
APPENDIX 11: Proportion of loan structure and bank non-interest income
analysis
Source: Data fillings
The bubble chart indicates a linear relationship between personal lending and Personal Lending and Total
Operating Income. Retail commercial banks have more ground to grow non-interest incomes with the exposure of
set of their personal customers with banking services.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
MBB ACB VPB SHB STB HDB TPB TCB SOCB
Bank property structure
Type 1 debt Government bonds Other profitable assets Bad debt + Non-profit assets
MBB
ACB
VPB
STBHDB
TPB
TCB
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
80.00%
-5.00% 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00% 45.00%
Proportionofloanstoindividualcustomers
Personal Lending Weight (Veritcal) and Non-Interest Income by TOI
(Horiziontal)

19. 19
APPENDIX 12: Moody Rating for ACB, MBB, HDB, STB, TPB
Non-
Investment
Grade
LT Counter
party Risk
Rating
LT Bank
Deposits
Counterparty
Risk
Assessment
LT Issuer
Rating
Baseline
Credit
Adjusted
Baseline
Credit
Assessment
Ba1
Ba2
Ba3 ACB MBB ACB MBB
B1 TPB HDB ACB MBB TPB TPB HDB ACB MBB TPB ACB MBB ACB MBB
B2 HDB HDB TPB TPB
B3 STB STB HDB HDB
Caa1 STB STB
Caa2 STB STB
Caa3
Ca
C
Source: Moody
VPB*: Not yet rated under all the mentioning parameter

20. 20
APPENDIX 13: ACB’s Brand recognition and popularity
Source: Google Trend
Source: Brand Beat Score Vietnam Banking Report 2017
0
20
40
60
80
100
120
Bank's related searches popularity on Google (12 months trailing)
ACB STB HDB VPB MBB
0 2 4 6 8 10 12 14 16
ACB
VPB
STB
MBB
TPB
SHB
HDB
Brand Awareness Index

21. 21
Disclosures:
Ownership and material conflicts of interest:
The author(s), or a member of their household, of this report does not hold a financial interest in the securities of this
company.
The author(s), or a member of their household, of this report does not know of the existence of any conflicts of interest
that might bias the content or publication of this report.
Receipt of compensation:
Compensation of the author(s) of this report is not based on investment banking revenue.
Position as an officer or director:
The author(s), or a member of their household, does not serve as an officer, director or advisory board member of the
subject company.
Market making:
The author(s) does not act as a market maker in the subject company’s securities.
Disclaimer:
The information set forth herein has been obtained or derived from sources generally available to the public and
believed by the author(s) to be reliable, but the author(s) does not make any representation or warranty, express or
implied, as to its accuracy or completeness. The information is not intended to be used as the basis of any investment
decisions by any person or entity. This information does not constitute investment advice, nor is it an offer or a
solicitation of an offer to buy or sell any security. This report should not be considered to be a recommendation by any
individual affiliated with Vietnam Organizer Team, CFA Institute or the CFA Institute Research Challenge with regard to
this company’s stock.
CFA Institute Research Challenge