Bài thu hoạch thuyết trình chi tiết về Bond and Stock Valuation of Vietcombank in Vietnam; Solutions for investors and bank môn Tài chính Doanh nghiệp Business Economics NEU. Bản full tiếng anh và số liệu cập nhật mới nhất 052023.
Bond and Stock Valuation VIETCOMBANK Instructor: Mr Pham Van Tue Nha Our group consists of members: 1.Bùi Thu Trang 2.Nguyễn Thị Minh Tú 3.Lê Hải Yến 4.Trần Đỗ Hoàng Minh 5.Lê Đình Duy Due to limited information search time and limited knowledge, the report inevitably contains subjective and incomplete judgments Our team is looking forward to receiving comments and sympathy from lecturers and readers " We sincerely thank you! TABLE OF CONTENTS Introduction Discussion 01 02 Introduction of the company Bond and stock valuation of the company 03 Bank-specific valuation methods 04 Recommendations to the company and investors Conclusion References Introduction In the past 10 years, the industrial revolution 4.0 has brought great leaps to the industry in Vietnam Entering 2022, the impact of Covid-19 will no longer disrupt the strong development cycle of the banking system Concerns about the risk of bad debt will cool down from the end of the first quarter of 2022 along with the recovery of the economy will be the driving force for banks to maintain the growth rate and achieve stable profits Therefore, we have chosen Vietcombank as the subject for our presentation on stock and bond valuation We would like to thank Mr Pham Van Tue Nha for bringing us interest in the subject of Corporate Finance We hope to receive your comments on this report Discussion I INTRODUCTION - Full name: Joint Stock Commercial Bank for Foreign Trade of Vietnam - HOSE Code: VCB - VCB provides finance services: + VCB mainly focus on commercial banking activities with the traditional sector being wholesale banking (business serving corporate customers) + Retail banking activities: Working in the consumer sector Real estate lending services mortgage loans, home loans… Financial services business serving individual customers + Insurance: Life insurance business Non-life insurance, reinsurance + Investment bank: Trading and investing in stock Asset/investment fund management activities Financial services for buying, selling, splitting, merging companies + Non-financial activities: Trading and investing in real estate Invest in the construction and development of infrastructure projects History of establishment and development: Vietcombank was founded on April 1963 as the Bank for Foreign Trade of Vietnam It was spun off from the State Bank of Vietnam to be an exclusive bank for foreign trade In 1990, Vietcombank started to diversify its services In 1996 the official name was changed to Joint Stock Commercial Bank for Foreign Trade of Vietnam On June 30, 2009, Vietcombank shares (stock code VCB) were officially listed on the Ho Chi Minh City Stock Exchange Over nearly 60 years of growth, Vietcombank is considered as a key external bank, contributes effectively to economic development in the country, and has impacts on the regional and global financial community II EVALUATING Bond THEORY What is bond valuation? How to price a bond? Bond valuation is a technique for determining the theoretical fair value of a particular bond Bond valuation includes calculating the present value of a bond's future interest payments, also known as its cash flow, and the bond's value upon maturity, also known as its face value or par value Because a bond's par value and interest payments are fixed, an investor uses bond valuation to determine what rate of return is required for a bond investment to be worthwhile Pricing a Bond in Steps: Since a bond pays periodic coupon payments and a lump sum (par value) at maturity, its price is best calculated by using the following steps: Step Lay out the cash flows on a timeline; Step Determine an appropriate discount rate (yield to maturity); Step Calculate the present value of the coupons and the par value; Step Add up the two present values to calculate the bond price - Formula: - Key Bond Terms include: Par value: The principal or face value of a bond on which interest is paid, typically $1000 Coupon rate: Annual rate of interest paid by issuing (borrowing) companies Coupon: The regular interest payment received by the buyer It is calculated as the product of the coupon rate and the par value (and divided by 2, if semi-annual) Maturity date: The expiration date of the bond on which the final coupon and the principal value is paid by the issuer Yield to maturity: The discount rate or expected rate of return on a bond (it is the bondholders’ rate of return) which is used to determine its price Current price: Depending on the level of interest rate in the environment, the investor may purchase a bond at par, below par, or above par For example, if interest rates increase, the value of a bond will decrease since the coupon rate will be lower than the interest rate in the economy When this occurs, the bond will trade at a discount, that is, below par However, the bondholder will be paid the full face value of the bond at maturity even though he purchased it for less than the par value trang 05 Bond valuation of Vietcombank Type of bond: non-convertible corporate bond Form of bonds: issued in the form of journal entries Issuance purpose: Vietcombank will issue separate bonds in 2022 to increase tier-two capital to supplement capital and meet Vietcombank medium and long-term lending needs for socio-economic development At the same time, the bond issuance aims to improve Vietcombank's financial capacity Issuance method: through an issuing agent (Joint Stock Commercial Bank for Foreign Trade of Vietnam Securities Company Limited) in the form of a private placement Most of the bond was With a par value of billion VND, it will be difficult for individual investors to buy, so all bonds of VCB are owned by large enterprises (more specifically, insurance companies) * Problem: Vietcombank Securities Co Ltd (VCBS) issued 800 bond notes to investors on 15/07/2022 The face value of the bond had been set at 1.000.000.000 VND The total value of issued bonds worthed 8.000.000.000.000 VNĐ The maturity of the bond is 15 years and interest will be paid annually The yield to maturity on these bonds is 5% The bond has a coupon rate of 6.8 percent per year for the first 10 years from the issue date, and for the next years, the coupon rate will be percent per year What is the current bond price? Stock In 2009, Vietcombank shares were officially issued on HCM Stock market (HOSE) After 13 years of trading on the stock exchange, there was a time when its stock price in the market was traded for 100,000/share in February recently The current price has increased by 171.07%, proving that the real value of the stock is getting higher and higher, and the bank itself is also developing well year by year At the same time, the liquidity of VCB stock was maintained and increased by the tastes of investors in the market Not only in the domestic market, the number of foreign investors matching orders for VCB shares has been quite high for many years because of its prestige as well as potential for development and growth The profit of the firm rarely reported a loss despite the COVID-19 pandemic Their dividend was alway pay by money (800 VND/share) from 2015 to 2019, last year (2020) dividend was 1200 VND per share and 276 stocks for every 1000 stocks you owned This year period has been cycling for the whole last decade and we think that it will continue in the future DEFYING THE PRICE OF THE STOCK: Stock valuation is the process of valuing companies and comparing the valuation to the current market price to see whether a stock is over- or undervalued Stock valuation can be classified into two categories: absolute valuation and relative valuation Stock valuation is very common to Bond valuation,the only different is that the money you gain is increasing steadily over time In the case that you only hold the stock for a few years: => P0= PV1 + PV2 + +PVn In the case that you hold it forever for dividend: T = year (counting from the issued year) PV= value after discount (present value) Stock current dividend: 800 VND for years, might continue in the future 1200 VND for last year dividend and stock dividend (1000/276), which will happen at the end of a period -> Average money paid = 900 VND/stock ->Average Growth rate = 27,6%/6= 4.6% but because the next stock dividend can be 1000/40 -> Expected average Growth rate ~ 8% DEFYING THE PRICE OF THE STOCK: If the required return is 15% (there is many risk such as inflation is around 4% cause increasing in bank interest, bad debts might be appeared more as the result, and we have to wait for the economy recovering and end of world financial crisis caused by Ukraine-Russia war But in contrast, the bank has prepared for this situation by a fund with a huge amount of bad debt allowance money, and the bad debt rate of VCB is the lowest in the second quarter of 2022 Moreover, FED end others central bank has started to adapt the situation and Europe show a positive sigal when there fuel tank has full for this winter which mean the wheel of economy will run smoothly in the future Therefore, the price for the dividend if you owned stocks is: The dividend is great Compared to others such as BIDV, a big bank that is late in paying dividends throughout history with less profit (around 700 in average) and only paid dividends by stock approximately 100:26 and only 200 VND/stock in the 2021, VCB is much more profitable and more stable The price of VCB on the stock market also shows much higher growth potential than BIDV, whose stock price is now equal to 2018 while VCB almost 1.5 more valuable than its in late 2019 III BANK-SPECIFIC VALUATION METHODS Evaluating the bank's performance Besides valuation by the above method, people often use the formulas called P/B and ROE, because these two formulas give more accurate results a) P/B ratio: The P/B ratio (Price to Book ratio) is an important financial ratio, used to compare the price of a stock with its book value The P/B ratio is often used for valuation because of the peculiarity of the banking group that is based on the performance of assets When there is a change in asset quality, returns will vary greatly Comparing P/E and P/B: P/E ratio Often used to evaluate businesses with relatively stable and less volatile profits such as: Production enterprises Easy to evaluate and calculate due to the small degree of data deviation, maily in terms of business cash flow to see if the enterprise has real income from main business or not P/B ratio Often used to evaluate businesses that mainly increase asset value but have unstable profits and high liquidity such as financial and real estate businesses It is more difficult to evaluate because it is necessary to determine the fair value of each asset in the balance sheet or asset quality like bank loans - Calculation formula: - The P/B ratio will show how many times the stock price is higher than the book value of the business A high P/B ratio means that the market is expecting a very good future business prospect Therefore, investors are willing to pay more for the book value of the business A low P/B ratio means the actual market value of the business is much lower than its Book Value Besides, the business is in the recovery phase (of a business cycle), the P/B ratio is also low, but business results gradually improve, profits increase, helping to increase book value In this case, the stock is undervalued and this is an opportunity for investors to buy - Example: Vietcombank's P/B ratio is 71.8/26.7 = 2.69 b) ROE index "A great company isn't necessarily the biggest company, it's the company that delivers the most value to shareholders." Warren Buffett Therefore, ROE (Return on Equity) is an indicator that measures the efficiency of the use of equity in a business It is used to assess the efficiency of capital use, identify a competitive advantage of the business compared to other competitors in the industry General formula The higher the ROE ratio, the more effectively the company uses the capital of its shareholders It means that the company has harmoniously balanced between shareholder capital and borrowed capital to exploit its competitive advantage in the capital raising process and scale expansion At the present time, a good ROE is estimated to be between 18 - 20% However, Vietcombank's ROE is at a very high level, about 22.03% This is the company with the highest ROE among the Big banks c) Relationship between P/B and ROE The relationship between P/B ratio and ROE index should also be considered when evaluating a bank Normally, P/B will be proportional to ROE because investors are willing to pay a higher price to buy shares of a company that gives them more profit Vietcombank is an example for this case, when both the P/B and ROE ratios of this bank are high Bad debt assessment and bad debt coverage ratio: In addition, people also evaluate the bad debt of banks Total bad debts as of September 30, 2022 of Vietcombank increased by 47% compared to the beginning of the year, accounting for nearly 9,004 billion VND of total outstanding loans Besides, Vietcombank's allowance for bad debts reached 402%, the highest among commercial banks c) Relationship between P/B and ROE IV RECOMMENDATION Recommendation for investors Stock Firstly, although there were many times when bank stocks dropped in price like the Covid 19 epidemic in 2019-2021, the banking industry still recovered quickly Therefore, large-scale commercial bank stocks like Vietcombank are always "hunted" by investors Vietcombank always keeps the bad debt ratio at a very low level Secondly, the valuation of VCB stock is always higher than that of other banks The provision of Vietcombank is currently 98% higher than the average level of the private banking system in Vietnam Therefore, Vietcombank is worth investing in because of its profitability and development potential Usually, the end of the year often witnesses an increase in bank value Investors can take advantage of taking profits at this time 1 Recommendation for investors Bond Currently, Vietcombank's largest shareholder is the National Bank, which holds 74.8% of the capital, so it is certainly difficult to go bankrupt or cheat, so if you choose to buy bank bonds, Vietcombank's bonds are the most trusted The term of Vietcombank bonds is 10 years, but bondholders can invest flexibly Because, after years from the date of issuance, Vietcombank will buy the bonds back Moreover, after years from the issuance date, the Bonds could be pledged at Vietcombank and other banks to borrow money at preferential interest rates The interest rate of Vietcombank is also very high, often more than 8.5%/year Lastly, Vietcombank bonds are highly liquid and the bank is always in the top, so there is no need to worry much about the money spent Therefore, VCB bonds are the safest medium and long-term investments Recommendations for banks Stock Maintain business operations effectively to create stability in business development Thanks to this, the share price can increase and attract more investors Transparency of the Company's information to investors can stabilize investor sentiment and avoid stock devaluation Because VCB's share value is at a high level (share value on 5/11/2022 is 71.8 thousand VND), it is necessary to split shares to reduce share value and increase dividend From there, bank can attract more retail investors with little capital Bond Bank bonds are issued for a long time so it is difficult for newbies to buy Vietcombank bonds Therefore, bank should create short-term bond periods to attract more investors At the same time, strengthen and improve the capital control system to avoid financial risks From there, effectively divide the use into non-banking fields such as guarantee, currency brokerage, real estate, Conclusion Up to now, Vietcombank has maintained a very high growth rate and is the highest among the top banks in the industry Vietcombank's bonds are purchased, then redistributed by large and reputable investors This is a safe medium and long term investment channel Vietcombank shares still maintain a stable price and have strong growth potential, especially from the end of 2022 to the beginning of 2023 References 01 https://vietnammoi.vn/so-sanh-laisuat-4-ong-lon-ngan-hang-tiep-tuc-tangmanh-trong-thang-1120222022118143842900.htm 02 https://baochinhphu.vn/lam-phat-nam2022-suc-ep-lon-nhung-van-trong-tamkiem-soat-102220705172552221.htm 03 https://vneconomy.vn/cuoi-nam-2022no-xau-ngan-hang-tiep-tuc-phan-hoakhong-deu.htm 04 https://www.vietnamplus.vn/ty-lebao-phu-no-xau-cua-vietcombank-dat-424cao-nhat-he-thong/767517.vnp 05 https://finance.vietstock.vn/VCBngan-hang-tmcp-ngoai-thuong-viet-nam.htm Thank You