Market waits with baited breath for IPO

Realistic view
Most Vietnamese stock investors have a small financial capacity and pursue short-term investment strategies. Vietcombank (VCB)’s lengthy equitisation and listing plan and its high initial share price have disappointed many stock market players. Investors may therefore base on VCB’s past and current business performance to decide on how much they will pay for the shares rather than looking at its business prospect.

VCB is Vietnam’s second biggest bank after Agribank in terms of network and asset. Yet its business performance is far to be impressive, reflected by the post-tax profit to equity ratio being at an average level and the profit and credit growth rates being much lower than those of such joint stock banks as the Asia Commercial Bank (ACB), Sacombank (STB) and Eximbank. VCB’s non-performing loan ratio is nearly four times higher than that of STB and 14 times higher than that of ACB.

In the first nine months of this year, VCB posted just VND1,546 billion ($96.2 million) in profit, resulting in a return on equity (ROE) of 13.2 per cent. Meanwhile, ACB gained VND1,133 billion ($70.5 million) with ROE at 29.8 per cent. STB earmarked VND893 billion ($55.6 million) with ROE at 13.1 per cent. Vietcombank’s estimated post-tax profit for 2007 is about VND2,250 billion ($140 million) in comparison with its new chartered capital of VND15 trillion ($933 million), so the estimated earning per share (EPS) is around VND1,500 (93 cents). Based on the banking sector’s average P/E ratio of 35, the respective price of a Vietcombank share should therefore be VND52,500 ($3.2).

Investors holding this view will likely not be enthusiastic about bidding for VCB shares with belief that the offered initial price of VND100,000 ($6.2) per share is too high. Some may put a price slightly above this initial level.

Optimistic view
Investors holding this view see buying into VCB is buying its future. Most foreign institutional investors may expect a high growth rate of VCB. Such investors assume it will take VCB around three years after its IPO to transform from a state-owned commercial bank into a joint stock one, focusing on investing in technology, establishing and empowering new affiliates. Consequently, there will not be sudden change in its performance efficiency for this period and the expected ROE will equal the market average of about 19 per cent. From 2011 to 2015, VCB’s growth would accelerate with a ROE ratio possibly reaching 25-30 per cent. For the 2016-2020 period, VCB’s development would be mature and the expected ROE would mount up to 35 per cent. After 2020, VCB would embark on a stable growing period. These suppositions lead optimistic investors to predict the VCB’s share price will range from VND90,000 ($5.6) to VND120,000 ($7.4) per share depending on the discount coefficients.

Neutral view
As VCB has not performed very efficiently so far, it is not clear when it will transform into a powerful bank like Singapore’s Tamasek given open questions over its allocation of the surplus capital raised from the IPO. Meanwhile, its high state ownership rate may affect its dynamics, and the mushrooming of securities companies and commercial banks may take away key personnel from the bank. And it is unclear when negotiations with strategic foreign partners will be finalised.

Domestic securities companies, fund managers, some local financial organisations and investors understanding the market very well may hold the neutral view. Investing in VCB requires a large amount of capital and a long holding time, while many big names such as Incombank and MobiFone will soon carry out their IPOs, causing difficulties to these investors in mobilising capital. As a result, they will be very cautious and may make the decision at the last moment. But they will likely not put a high price.

The winning average price will be obvious by December 28-29. However, we believe the majority of investors will put a price of between VND100,000-120,000 ($6.2-7.4) per share.
We expect the average winning price will be VND110,000.