Dear Our Fellow Readers,

AlphaChart would like to send you ACB 5-2 Intelligent Report, dated Nov. 24, 2019. In this report, taking a long-term
2 to 5-year view, we highlight 5 potential headwinds that ACB might have to face, together with 2 potential tailwinds
the bank could use as cushion. In the end of the note, we would also express our investment view on the stock, and
what does it take for us to review our investment stand in the future

For the full year of 2018, ACB reported profit before tax of Bn. 6,389 VND, +141% y/y. As end of 3Q 2019, we
estimated that ACB recorded an ROE of 25% and an ROA of ~1.7%, amongst the highest in the banking system.
Making no mistake, however, we believe 5 structural negative trends are about to take place in the coming years in
the bank’s financial reports

PART I: 5 POTENTIAL HEADWINDS

BN. VND 2013 2014 2015 2016 2017 2018 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19

EBT - EARNING BEFORE TAX 1,036 1,215 1,314 1,667 2,656 6,389 1,490 1,661 1,625 1,612 1,707 1,915 1,939
YoY -1% 17% 8% 27% 59% 141% 151% 149% 119% 147% 15% 15% 19%

5 POTENTIAL HEADWINDS
1. Peaking Recovery Gains 48 52 148 79 369 1,765 201 309 346 910 125 466 68
YoY 1688% 7% 185% -46% 366% 378% 2098% 665% 2155% 199% -38% 51% -80%
% EBT (R4Q) 5% 4% 11% 5% 14% 28% 16% 18% 21% 28% 26% 27% 22%
* R4Q = Rolling Latest 4 Quarters
* Recovery gains accounted for ~28% of PBT in 2018, and ~22% in the latest 4 quarters as end of 3Q19

2. Bottoming Credit Cost (855) (879) (884) (1,218) (2,565) (932) (134) (311) (215) (272) 16 (111) (66)
% Loan (R4Q) 0.80% 0.79% 0.70% 0.80% 1.42% 0.43% 1.10% 1.02% 0.84% 0.43% 0.35% 0.25% 0.18%
% EBT (R4Q) -83% -72% -67% -73% -97% -15% -59% -45% -32% -15% -12% -8% -6%
* Credit cost has been declining to the level of 18bps of loans as end of 3Q19 on the Rolling 4 quarter basis, and almost nothing in the Q1 and Q3 2019
* Can it sustain at this near Zero level ?!

3. Declining Bonds Yield 8.04% 6.82% 6.96% 6.25% 6.66% 5.73% 6.49% 6.16% 5.83% 5.73% 5.99% 5.91% 5.77%
chg. -3.92% -1.22% 0.14% -0.71% 0.41% -0.92% -0.16% -0.34% -0.33% -0.10% 0.25% -0.08% -0.14%
G-Bonds % Total Portfolio 68% 68% 73% 83% 92% 98% 94% 97% 98% 98% 97% 99% 99%
Bonds Revenue % EBT (R4Q) 220% 222% 201% 145% 124% 46% 92% 69% 55% 46% 46% 44% 42%
Note: Only if ACB changes its risk appetite, bonds yield will approach 3 - 4% which is where 5 & 10-Y G-Bonds are trading
~40% of PBT (assuming same CoF) would be at risk to be cut by almost half !?

4. Bottoming-out CIR 67% 65% 65% 62% 54% 48% 53% 47% 46% 48% 48% 50% 51%
* As loan growth slowdown and Non-NII running out of steam, Revenue growth has been declining
* While OPEX has little room to cut. We estimate, per employee, ACB is on par with VPB, paying ~20 - 30% lower vs. MBB & TCB
* As a result, CIR has been bottoming out

5. Thin Capital Buffer

Peaking ROE 6% 7% 8% 10% 14% 27% 17% 22% 25% 27% 27% 26% 25%
on thin E/A 7.5% 6.9% 6.3% 6.0% 5.6% 6.4% 5.7% 5.9% 6.2% 6.4% 6.7% 6.8% 7.1%
Peaking ROA 0.48% 0.53% 0.54% 0.58% 0.79% 1.64% 0.99% 1.23% 1.45% 1.64% 1.65% 1.67% 1.69%
* ACB has lowest E/A ratio (i.e highest leverage) among peers which are VCB, MBB, TCB, VPB
* Recent treasury shares sales would bring E/A to around 7.3% which doesnot change the picture above
* We believe E/A needs to or should be brought to at least 9% over the next 3 - 4 years, and then should continue to rise further
* And that ratio (i.e 9%) will still be lower than those of MBB, TCB, VPB right now in 2019,
and just about on par wich VCB post VCB's new shares issuance in 2020
not saying still way below regional peers
* Low E/A has been hidding ACB's lowest ROA among these peers
* We estimate sustainable ROE to be 15% - 17% and sustainable ROA to be around 1.4% - 1.6% for ACB vs. 25% and 1.7% respectively as 3Q19

PART II: 2 POTENTIAL CORPORATE EVENTS That Might Provide Some Cushion

1. An exclusive bancassurance deal: It is widely expected that ACB would sign an exclusive bancassurance deal in
2020 or 2021, which might bring two things: a) An one-off upfront fee, and b) an enhanced recurring income stream
from commissions received from such a deal. While we broadly agree with both, we would like to note:

a) The upfront fee is a non-recurring event. It could be estimated via. past deals in the banking system, but
adjustments must be made for network and/or customer base differences; and
b) The NET addition of recurring commission from such a deal could be less than many are expecting, given that
ACB at the moment already has some bancassurance business and the associated income
2. Divestment of ACBS: While we do not think the divestment, if any, would be at below cost (which does not look
low, by the way, in ACB’s current balance sheet), we believe the divestment gain would be immaterial given the
whole securities sector has sold off in the past one year. And like the upfront fee for the bancassurance deal, any
gain from the divestment would be a non-recurring profit, offset by recurring decrease in income contribution from
ACBS which by then would be de-consolidated from the holding bank.

PART III: INVESTMENT VIEW

• First, lets make it very clear, we do NOT have sell recommendation for ACB – the bank that has relatively
clean balance sheet, lots of room to optimize (should it change the risk appetite), and trades at 5 – 6x PE
• In fact, given the potential positive corporate events above, at times ACB would probably be considered as
an opportunistic/tactical BUY. Unfortunately, neither do we nor the general market have reliable knowledge
on the timing of these events.
• Taking a very long-term, however, we project ACB’s 3-Year EPS CAGR to be only 6 – 7% for the period of
2019 – 2022 in the base case scenario. Specifically, we project ACB’s core earnings before tax (excluding any
one-offs) to reach ~9.0 – 9.5bn. VND in 2022. We also project ACB’s net income to shareholders (after all
other distributions) to be 7.0 – 7.4trn VND in 2022, the level that is likely lower than those of MBB, TCB or
VPB right now in 2019.
• We also estimate ACB’s sustainable ROE to be 15 – 17% (vs. 25% as 3Q19 and 27% for FY2018) and
sustainable ROA to be 1.5 – 1.7%. At the same time, no meaningful cash dividends are expected to be
distributed until 2023 after the bank’s equity / assets ratio could reach at least 9.0% or above.
• As a result, given ACB’s lower earning growth profile than peers, thinner capital base than peers in a
regulatory environment yet to tighten for many more years to come, and less option to raise tier-1 capital
than peers, we believe ACB will underperform peers in a buy-and-hold strategy for the next 2 – 3 years.
• We would review our view conditional on: 1) better visibility on ACB’s path to bring leverage ratio down to
the peers’ levels; and 2) Signs that the bank’s balance sheet is taking a more optimal risk-reward appetite
• Peers = VCB, TCB, MBB, VPB

PART IV: A SIDE NOTE

It is commonly cited by the market that ACB is a, if not the, most conservative bank in the system (i.e. low LDR,
~100% G-Bond portfolio, little NPL, and almost nil exposure to the real-estate market. We would like to note that:

• Unless the capital buffer could be raised, low LDR could be a chronic phenomenal. LDR ratio only captures
the deposit side of the total funding, while ignoring the equity side of it.
• And in an economy growing at ~7% on a sustainable basis, an almost Zero-Risk balance sheet is not
necessarily the best practice. In fact, with the 10Y bond yields are approaching 3% in Vietnam and negative
elsewhere, a Zero-Risk Balance Sheet might NOT even work!
• Lastly, what are ACB’s key niches vs. peers?

Please do not hesitate to contact us for more details or further debates. All figures above are estimates based on our
best knowledge from publicly available information. The figures could be inaccurate either by unintentional mistakes
or differences in the used formulas. We disclaim all responsibilities, if any. Best!

Troy Pham
Lead Chartist
AlphaChart | Insightful Charts for Alpha Seekers
Email: Troy@AlphaData.com.vn | Tel: +84 163 835 0028