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Vietinbank IPO remains an unknown
Tan Viet Securities has provided analysis of the attractiveness of Vietinbank’s shares ahead of the bank’s IPO, slated for December 25. Meanwhile, Vietinbank’s chairman has offered five reasons why investors should buy the bank’s shares.
Good information
According to Vietinbank Chairman Pham Huy Hung on December 16, 2008, Vietinbank is one of the best banks in Vietnam at this moment, because:
First, the Vietinbank brand name has been highly praised by foreign institutions.
Second, Vietinbank has a wide operation network: one head office, three exchanges, 138 branches, 188 transaction offices in 56 cities and provinces. Vietinbank has relationships with 800 banks and financial institutions in 90 countries.
Third, Vietinbank now possesses 563,284 sq m of land in advantageous positions. A lot of beautiful offices have arisen on beautiful land plots in Hanoi, HCM City and Da Nang. Vietinbank has spent $54mil to get land use right certificates. Therefore, its expenses for land and office leasing will be zero in the coming years.
Fourth, Vietinbank had the very low non-performing loan ratio of 1.02% in 2007.
Fifth, Vietinbank has changed its name (from Vietincombank to Vietinbank) and logo, which shows its determination for renovation.
Bad information
However, there is some information that may lessen the value of Vietinbank’s shares.
First, Vietinbank’s vision, strategies and action plans to implement business plans remain unclear.
Second, Vietinbank has a big number of employees, over 14,000.
Third, regarding information exposure, information about the leadership and board of directors proves to be very limited. Investors want to know more information about the ages, backgrounds and management skills of the boards of management and directors.
In addition, figures provided in the financial reports of 2007 and nine months of 2008 are not enough to conclusively show good business results. The ROA was low, 0.76%, as was the ROE (14.12%) in 2007.
Fourth, the business plans for the coming years do not meet investors’ expectations. The planned dividends, VND323 for 2009 and VND437 for 2010, are considered too low, just 1.6% and 2.2% of the starting price of VND20,000/share.
Fifth, after the equitisation, the state will still hold 80% of stakes, which may raise the fear that there could be a big change in the bank’s management.
Sixth, there is still not a detailed roadmap on the listing of Vietinbank’s shares after the IPO.
Seventh, it remains unclear about how the capital from the IPO will be used.
How much for Vietinbank’s shares?
Tan Viet Securities has identified four possible methods that may be employed to valuate Vietinbank’s shares and the expected share prices for every method.
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No |
Method of valuation |
Estimated share price on average (VND) |
|
1 |
P/E – Price/Earnings |
10,500 |
|
2 |
P/B – Price to Book |
17,000 |
|
3 |
FCFE – Free Cash Flow to Equity |
21,500 |
|
4 |
DDM – Dividend Discount Model |
16,600 |
Tan Viet Securities thinks that short-term investors will gage the value of Vietinbank’s shares by comparing Vietinbank’s indexes with the indexes of listed banks (ACB, STB) and unlisted (VCB, MB, HBB and Eximbank) to decide whether to join the IPO or not.
Long-term institutional investors will pay attention to capital preservation. Annual dividends need to be high enough to cover capital costs.
Meanwhile, foreign strategic investors have expectations different from domestic investors. They aim to join the bank’s management board and make decisions on the operations of the bank. Therefore, they may pay prices higher than the starting price.
TBKTVN
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