Bank Valuation, Case of BIDV for IPO

Bank Valuation, Case of BIDV for IPO tài liệu, giáo án, bài giảng , luận văn, luận án, đồ án, bài tập lớn về tất cả các...

RESEARCH DISSERTATION “BANK VALUATION CASE OF BIDV FOR IPO” Autho r: Do an Vie t Ho a ng Pro g ra m: MBA 15 th Inta ke : 2006 - 2008 Tuto r: Dr. Nguye n Dinh Tho Hanoi, October 2008 Bank valuation – Case of BIDV for IPO Acknowledgement First and foremost, I would like to express my most heartfelt gratitude to my tutor, Dr. Nguyen Dinh Tho for his invaluable guidance and constructive suggestions throughout the course of the research. I would like to take this opportunity to express my special thanks to all professors at the CFVG-Hanoi for their teaching invaluable knowledge and their support during my study. My sincere thanks are also addressed to investors, Manager of Investment Division, Board of Directors at BIDV-Hathanh Branch as well as Board of Directors at BIDV Head office for their in-depth interviews assistances for this research study. Finally, many thanks are also due to my best friends and my classmates at CFVG for their warm friendship and kind support for a very memorable stay within the CFVG community. All of them encouraged me for my study and greatly contributed to my continuous development. Student, Doan Viet Hoang Doan Viet Hoang – MBA-CFVG 15A1 2 Bank valuation – Case of BIDV for IPO Abstract Being an emerging economy, Vietnamese’s enterprises are becoming to play more and more important role in economy, especially the state owned-enterprises (SOEs) , be aware this issue, Vietnam government has carried out the reform and rearrange of state owned- enterprises, where equitization and IPO play a very importance role. The success of equitization and IPO bid will make the reformation and rearrangement become successful and it’s the initial factor to establish and enhance the financial market as well as stock exchange market in Vietnam But, in Vietnam’s stock market, almost investors have an inadequate understanding of the stock market and lack of professional knowledge as well as necessary information related to the market. Most of them just follow short-run investments as speculators or “gamblers”. Therefore, stock valuation is a controversial issue with various schools, various viewpoints and models. There are lots of distortions in stock valuation, especially valuation of a bank for IPO in emerging markets like in the Vietnam’ market. Even so, it is the first step towards a “rational” investing decision-making in long term. Furthermore, stock valuation is also one of premises of stable development of any stock market. Having recognized all of these aspects, this research study is conducted as an explorative study of the applicability of relatively appropriate models of stock valuation as well as bank valuation for investors who would like to invest in banking sector through IPO bid under current conditions in Vietnam. By realizing real situations of the IPO process, obstacles regarding bank valuation that perform IPO and estimated intrinsic value of the BIDV’s stock as a case study will be presented. Through study thesis we will understand and be suggested some suitable models on bank valuation and adjustments for the application of bank valuation as well as stock valuation models in the specific conditions for the IPO. Recommendations with respect to the improvement of reliability of information disclosure also are carried out so as to serve for bank valuation and stock valuation activities in the Vietnam in years to come. Doan Viet Hoang – MBA-CFVG 15A1 3 Bank valuation – Case of BIDV for IPO Table of contents Title Page TITLE PAGE 1 ACKNOWLEDGEMENTS 2 ABSTRACT 3 TABLE OF CONTENTS 4 LIST OF TABLES AND FIGURES 7 LIST OF ABBREVIATIONS 8 CHAPTER I INTRODUCTION 1.1. RATIONALE 9 1.1.1 General background 9 1.1.2 Justification 9 1.2. PROBLEM STATEMENT 10 1.3. RESEARCH OBJECTIVES 11 1.4. KEY ASSUMPTIONS AND SCOPE OF THE STUDY 11 1.5 . RESEARCH METHODOLOGY 12 1.5.1 Framework building 12 1.5.2 Data collection 12 1.6. ARRANGEMENT OF THE RESEARCH 13 CHAPTER II LITERATURE REVIEW ON BANK VALUATION FOR IPO 2.1. EQUITIZATION AND INITIAL PUBLIC OFFERING 14 2.1.1 Equitization 14 2.1.2 Initial Public Offering - IPO 14 2.2. SECURITY MARKET AND COMMON STOCK 15 2.2.1 Security market 15 2.2.2 Common stock 15 2.3. REASONS FOR STOCK VALUATION – VALUE VS. PRICE 15 2.3.1 Reasons for stock valuation 15 2.3.2 Value vs. price 17 2.3.3 Stock valuation process 18 2.4. STOCK VALUATION MODELS 18 2.4.1 Balance Sheet approach 19 Doan Viet Hoang – MBA-CFVG 15A1 4 Bank valuation – Case of BIDV for IPO 2.4.2 Price ratios approach 19 2.4.3 Discounted Cash Flow approach 20 2.5. STOCK VALUATION MODELS AND BANK VALUATION MODELS 28 2.5.1 Characteristics of a Bank 28 2.5.2. General Frame work for Bank valuation 30 2.5.3. Equity versus firm for a bank 30 2.5.4. Bank valuation models 30 2.6. INFORMATION FOR STOCK VALUATION 32 2.6.1. Sources of information 32 2.6.2 Role of information disclosure in stock market 33 2.7. STOCK VALUATION IN EMERGING MARKETS 34 CHAPTER III BANK VALUATION – A CASE OF BIDV FOR IPO 3.1 DESCRIPTION OF BIDV 36 3.1.1. Bank profile 36 3.1.2. The establishment, development and business orientation 36 3.1.3. Equitization and IPO projection 37 3.1.4. BIDV’s common stock 37 3.2. FUNDAMENTAL ANALYSIS OF BIDV 38 3.2.1 Macroeconomic analysis 38 3.2.2 Industry analysis 39 3.2.3 Business analysis 40 3.2.4 Bank forecast 42 3.3. ESTIMATING VALUE OF BIDV’S COMMON STOCK 42 3.3.1 Balance sheet approach 42 3.3.2 Relative multiples approach 43 3.3.3 Discounted Cash Flow approach 45 3.4. FINDINGS FROM BIDV COMMON STOCK VALUATION 51 3.4.1 Application of Book value approach 51 3.4.2 Application of relative multiples approach 51 3.4.3 Application of Dividend Discount Model 52 3.4.4 Application of Excess return Model 52 3.4.5 Beta of BIDV stock 52 CHAPTER IV CONCLUSIONS AND RECOMMENDATIONS 4.1 SUMMARY OF FINDINGS AND CONCLUSIONS 54 4.2 RECOMMENDATIONS 56 4.2.1 General recommendations 56 4.2.2. Recommendations for application of stock valuation for IPO 57 4.2.3 Needs for further study 61 Doan Viet Hoang – MBA-CFVG 15A1 5 Bank valuation – Case of BIDV for IPO APPENDIX Page APPENDIX A – Questions 63 APPENDIX B– TABLE 3.1 – BIDV’s Structure and Organization 65 APPENDIX B– TABLE 3.2 – Consolidated Balance sheet 66 APPENDIX B– TABLE 3.3 – Consolidated income statement 67 APPENDIX B– TABLE 3.4 – Key Financial Ratios 68 APPENDIX B– TABLE 3.5 – Forecast Consolidated Balance sheet 69 APPENDIX B– TABLE 3.6 – Forecast Consolidated income statement 70 APPENDIX B– TABLE 3.7 – Discount Dividend Model 71 APPENDIX B– TABLE 3.8 – Excess return Models 72 Doan Viet Hoang – MBA-CFVG 15A1 6 Bank valuation – Case of BIDV for IPO LIST OF TABLES AND FIGURES List of Fingers Page Figure 1.1: Research framework 13 Figure 2.1: SOEs reformation in Vietnam 14 Finger 2.2: The Value and Price 17 Figure 2.3: Stock valuation process 18 Finger 3.1: GDP growth rate during 2000-2007 38 Finger 3.2: CPI and trade deficit of Vietnam 38 Finger 3.3: Number of commercial bank and chartered capital allocated 39 List of Tables Table 3.1: Book values of BIDV stock 43 Table 3.2: Estimated price of BIDV stock, Using PE multiple 44 Table 3.3: Estimated price of BIDV stock, 2008-Using PEG model 44 Table 3.4: Estimated price of BIDV stock, Using PB multiple 45 Table 3.5: Estimations and assumptions for BIDV valuation 46 Table 3.6: The discounted value of dividend from 2008-2011 47 Table 3.7: The discounted value of dividend from 2011-2015 and terminal value - 48 Table 3.8: Discounted excess return from 2008-2011 and Equity invested 49 Table 3.9: Discounted excess return from 2011-2015 and terminal value- ERD - 50 Table 3.10: Equity value sensitivity test for BIDV stock 51 Table 4.1: Summary of BIDV stock values – 2008 55 Doan Viet Hoang – MBA-CFVG 15A1 7 Bank valuation – Case of BIDV for IPO List of abbreviations ABBREVIATIONS MEANING SOE State-owned Enterprise OTC Over-the-counter market SSC State Securities Commission SCos Securities Company BIDV Bank for Investment and Development of Vietnam DDM Dividend Discount Model FCFE Free Cash Flow to Equity Model GGM Gordon Growth Model ERM Excess return model PEG Price-earnings growth P/E Price-earnings ratio P/B Price-to-book ratio P/S Price-sales ratio P/CF Price-cash flow ratio DPS Dividend per share EPS Earnings per share ROA Return on Asset ROAA Return on asset average ROE Return on equity ROEA Return on equity average CAPM Capital Asset Pricing Model IPO Initial Public Offerings Doan Viet Hoang – MBA-CFVG 15A1 8 Bank valuation – Case of BIDV for IPO CHAPTER I INTRODUCTION 1.1. RATIONALE 1.1.1 General background Since 1986, Vietnam has embarked in a comprehensive renovation to transfer its economy from a commanded to a market-oriented one. Thank to that, Vietnam has achieved an encouraging economic development. The average GDP increased at the rate of about 7.5 % in the period from 1991 to 2007, especially GDP growth rate reached 8.44% in 2007 (compared with 4.35% from 1986-1990) 1 . Since early 2008, because of the difficulty of international market and high domestic inflation rate, Vietnamese’ government has decreased the target GDP growth to about 7.0%, but this rate is also one of the highest GDP growth rate in Asia religion. Furthermore, since 1990s Vietnam has performed the equitization of State -Owned Enterprises process, it’s the initial step to establish stock market. Until now, Vietnam has equitized more than 3,916 of SOEs. In Vietnam equitization plays very important role for the development of Vietnam stock exchange, it supplies the commodities for market and contributes to regulate the market. One of the factors that make equitization to become successful is to take IPO, but the fair price for IPO of a stock on the view of investors, authorities or an equitized enterprises is a serious problem. Thank to success in equitization of SOEs, official securities markets were set up, Ho Chi Minh city stock exchange centre in 2000 and Hanoi Stock Exchange centre in 2005. This has huge contribution to the development of Vietnam financial market. 1.1.2 Justification Through primary observation, It could be mentioned some shortcomings as follows: 1. Most of State-owned enterprises (SOEs) now are often over valuated compare with under valuated in some previous years when do equitization. The investors who buy stock according to IPO process will not have many prove to determine fair value 2. Official market scale is also small, only about 300 firms listed out of about more than 50 thousand firms. 3. Most of investors appear to be a group of individuals like “speculators” but lack of professional skills. So, it is very difficult to observe the relationships between supply and 1 Source: Government General Statistic Office Doan Viet Hoang – MBA-CFVG 15A1 9 Bank valuation – Case of BIDV for IPO demand, between prices and the intrinsic values of stocks, especially price for IPO. These seem to be a matter in question. 4. There are numerous obstacles in so doings in Vietnam. On the one hand, accounting system in Vietnam enterprises has not yet conformed to the general conventions. On the other hand, Vietnamese enterprises have a tendency to avoid information disclosure to public. Therefore, useful information regarding financial health of IPO and the listed companies provided is still very limited 5. Legal system for stock market is not competed, that is one of the current shortcoming of Vietnam stock exchange. Currently, there many individual and organization have studied the research on stock valuation, but there is not many research on Bank valuation, fair price for IPO. Although those issues are not emerging ones in other stock markets, stock valuation and the application of related appropriate models in emerging markets such as Vietnam has been still one of critical and controversial issues. Therefore, having realized the above-mentioned issues, the following research topic has been formulated: “Bank valuation – A case study of BIDV for IPO” 1.2. PROBLEM STATEMENT Since 1990s Vietnam has performed the equitization of State - owned Enterprises process, most of enterprises have bid on stock exchange as IPO program, currently, the price for IPO are usually evaluated by assets method and subjective ideas The official stock market is an emerging market with a small size and less than eight-years of history. Therefore, in terms of stock analysis, it seems to be not really suitable to apply technical analysis to consider stock price for buy-or-sell decisions. Nevertheless, with respect to the purpose of estimating stock’s values and identifying mispriced securities for the purpose of value-based investment, the following issues could be raised as management questions to not only investors and brokers but also managers of IPO enterprises and other related regulatory agencies as well: 1. Why do prices of securities IPO have reflected to some extent the real health of their related enterprises? 2. With current situations of Vietnam stock exchange in terms of legal framework, security analysts’ competences, information, etc. would it be possible to apply available stock valuation models to analyze and evaluate effectively values of IPO stock? 3. With respect to imperfect accounting systems and information conditions in Vietnam, what are obstacles in doing analysis and how to adjust the application of valuation models as well as to improve the information disclosure system to support investors and investment brokers in stock valuation task? 4. What is differences of firm valuation and a bank valuation, what are the difficulties in bank valuation ? especially bank valuation for IPO ? Doan Viet Hoang – MBA-CFVG 15A1 10 [...]... MBA-CFVG 15A1 12 Bank valuation – Case of BIDV for IPO Research objectives Secondary data (listed bank an nontrading performance, financial information) Reviews of related literatures (Bank valuation) - Analysing features of the Equitization and IPO process - Identifying obstacles for stock valuation One focus group discussion for preliminary assessment Bank valuation, case of BIDV for IPO Secondary data... future potentials of the company, and therefore its valuation results tend to undervalue the company’s stock in many cases.1 1 Franks et al 1985, p 359 Doan Viet Hoang – MBA-CFVG 15A1 35 Bank valuation – Case of BIDV for IPO CHAPTER III BANK VALUATION – A CASE OF BIDV FOR IPO 3.1 DESCRIPTION OF BIDV 3.1.1 Bank profile Bank for Investment and Development of Vietnam (BIDV) was established under Decision No... as well as suggests some recommendations for the improvement of bank valuation activities for IPO bid Doan Viet Hoang – MBA-CFVG 15A1 13 Bank valuation – Case of BIDV for IPO CHAPTER II LITERATURE REVIEW ON BANK VALUATION FOR IPO 2.1 EQUITIZATION AND INITIAL PUBLIC OFFERING 2.1.1 Equitization Equitization is the incidence or process of transferring ownership of business from the public sector (government)... enterprises performed IPO, in essence, this is a case study Therefore, at the most, findings are used for the main purpose of reference for IPO valuation Doan Viet Hoang – MBA-CFVG 15A1 11 Bank valuation – Case of BIDV for IPO 1.5 RESEARCH METHODOLOGY 1.5.1 Framework building This research is an exploration study regarding fundamental analysis, aiming at the applicability of available models for bank valuation... statements (c) Official filings Doan Viet Hoang – MBA-CFVG 15A1 32 Bank valuation – Case of BIDV for IPO (d) (e) (f) (g) (h) (i) ̇ Prospectuses Aggregate financial data Share price performance Index price performance Financial analysts’ forecasts Management forecasts Non – Financial information (a) Production and consumption statistics (b) Official industry statistics ̇ Non-quantified information (a).. .Bank valuation – Case of BIDV for IPO 1.3 RESEARCH OBJECTIVES From the above-mentioned management questions, objectives of this research study are formulated as follows: 1 To analyze its specific features and shortcomings of the IPO in Vietnam and its outstanding common stocks in order to realize factors influenced on the application of the stock valuation models; 2 To evaluate the value of bank, BIDV. .. Previous dealings 2.6.2 Role of information disclosure in stock market Information disclosure is one of the most basic principles of stock exchange All information concerning to listed organizations as well as to operation of the market must be disclosed publicly, timely and accurately Therefore, level of information disclosure depends on market efficiency In terms of role of information disclosure in stock... on value or growth, a significant difference Whereas value investing is a method of appraisal that focuses on measures of intrinsic value, growth investing is a method of anticipation that focuses on forecasts of earnings growth for the sake of growth Doan Viet Hoang – MBA-CFVG 15A1 16 Bank valuation – Case of BIDV for IPO 2.3.2 Value vs price Karl Marx2 interaction model: In order to explain how prices... financing in Vietnam BIDV also plays the role of clearing bank for Vietnam stock exchange, as well as invest in financial market Main targets of BIDV is to become the leading financial group in Vietnam with four main activities: Commercial banking, Securities, Insurance and investment, now BIDV is completing perform equitization and take part IPO bid in first quarter of 2009 Slogan of BIDV is “sharing... MBA-CFVG 15A1 33 Bank valuation – Case of BIDV for IPO ̇ Request-based information disclosure: In a necessary situation to protect rights of investors, SEC and SSC have a right to request listed organizations to disclose the concerned information Benefits of information disclosure are expressed on three facets: From the investors’ viewpoint, the more sufficiency, obviousness, promptness that information be . recommendations for the improvement of bank valuation activities for IPO bid Doan Viet Hoang – MBA-CFVG 15A1 13 Bank valuation – Case of BIDV for IPO CHAPTER II LITERATURE REVIEW ON BANK VALUATION. test for BIDV stock 51 Table 4.1: Summary of BIDV stock values – 2008 55 Doan Viet Hoang – MBA-CFVG 15A1 7 Bank valuation – Case of BIDV for IPO List of. 4.2.2. Recommendations for application of stock valuation for IPO 57 4.2.3 Needs for further study 61 Doan Viet Hoang – MBA-CFVG 15A1 5 Bank valuation – Case of BIDV for IPO APPENDIX