COMMENT AND RECOMMENDATION

Compared to Vietnamese peers, OCB has not created any specific advantage such as strong position in auto lending like VIB or digitalization like TPB, high CASA like TCB. However, the bank has achieved outstanding growth rate in the past period by promoting retail banking (retail lending, SME and MSME) resonating with the relatively modest credit scale. Besides, low CASA rates could become the bank’s advantage in the future as OCB can attract idle cash flow from its customer base.

Although non-interest income accounts for about 33% of the bank’s total operating income, contributions from service activities are still quite modest, but there have been improvements since 2018 so far. We expect the bank to gradually improve earnings from this segment (+25%/year), especially after the signing the exclusive insurance distribution contract with Generali at the end of 2019, thereby helping to maintain a more impressive and sustainable profit margin in the future.

Based on the expectations that the bank will continue to maintain impressive profitability in the long term, credit growth of 28% in 2021 driven by the SME and individuals to help net interest income grow by 30%, PBT grow by 31%yoy, we recommend “BUY” OCB shares for a target price of 31,000VND, equivalent to an expected return of 18.3% compared to the closing price on May 24, 2021. This price corresponds to P/E forward at the end of 2021 at 7.5x.

OCB shares are currently trading at P/E which is 20% lower than peers -banks with comparable equity and outstanding balances in the group of developing countries in Asia-TBD (list in detail by appendix). So that we considered the bank stock is undervalued that supports for the potential upside as stated above.

INVESTMENT RISKS

Besides credit risks, OCB is under competitive pressure as it does not really have an outstanding advantage in the segment.

OCB shares have only been trading for more than 3 months on HOSE, so it takes time for the market to evaluate and keep an eye on. In addition, belonging to the banking group with high sensitivity to the market, the stock price is susceptible to the fluctuation of VNINDEX.