Expectations of a strong profit recovery from a low base have pushed many bank stocks to rebound, even surpassing historical peaks.
Ms. Hong Van, an office worker (Hanoi), was excited when her stock portfolio returned to profit, after nearly a year and a half of negative capital, at times the portfolio "evaporated" by 30%. Her account currently records a profit of more than 15%, thanks to the bank stocks in the portfolio rebounding from the bottom.
Not only Ms. Van, investors who have invested in many bank stocks recently have recorded better returns than the market average.
According to FiinGroup data, the banking industry price index increased by about 17% from the beginning of 2024, higher than the increase of VN-Index (11%) as well as some key industries including securities (12%), steel (10%) and real estate (4%).
Looking at the longer term, from the beginning of 2023 until now, many bank stocks have rebounded from the bottom and recorded strong growth rates such as HDB, LPB, TCB, MBB, BIDV, VIB, ACB, CTG and VCB.
Although the banking industry faces some risks such as the quality of bad debt is on the rise, this is still a stock sought after by investors in the first two months of 2024.
Of the 26 bank stocks traded on the stock exchange, 5 have recently hit their peaks, including VCB, BID, ACB, HDB and MBB. In addition, stocks of some banks such as CTG and LPB are also close to their historical peaks.
The common point of the group of stocks reaching record highs is that the banks have better business results than the industry average. 4 out of 5 banks with stocks reaching peaks are in the top profit and have better asset quality than the average.
However, unlike the Covid-19 period with its low interest rate and high credit environment, the cash flow into banking stocks is now selective and diversified. Although many stocks have hit new peaks, the growth momentum of the banking sector this time is not widespread.
Many stocks in the bottom market capitalization have barely increased in the past year, such as VBB, BVB, ABB, BAB, SGB, NVB, SSB, KLB, EIB... and are still far from their old peaks.
'Valuations of many bank stocks are at reasonable levels'
Explaining the recent increase in many "king stocks", experts generally agree that the valuation of many stocks in this group is at a reasonable level.
Mr. Ho Quoc Binh, Head of Analysis Department of Thanh Cong Securities Company (TCSC), said that this group is currently at its lowest valuation in history, around 0.9-1 times. In the past 10 years, there have only been three periods when bank stock valuations fell to rock bottom, including 2013-2014, 2019-2020 and now.
Also according to analysis by Vietcombank Securities Company (VCBS), the P/B (stock price to book value) of the whole industry is about 15% lower than the 5-year average. The high growth rate of profits and equity at some banks, according to VCBS, also helps the reserve P/B ratio to remain at an attractive level.
The P/B valuation of the entire banking sector by the end of 2023 is 15% lower than the 5-year average. Source: VCBS.
Besides attractive valuations, analysts say that cash flows into banking stocks thanks to expectations that the industry has "bottomed out" and passed the most difficult period.
Mr. Nguyen Tien Duong, Deputy Head of Research and Analysis Department of Vietcombank Fund Management Company (VCBF), commented: "With the positive outlook of the economy and low interest rate environment, many banks are believed to have gone through the most difficult period and can record positive business results this year."
Mr. Ho Quoc Binh also agreed that the upward trend of the "king stocks" group was triggered by expectations that profits in 2024 would increase sharply compared to the low base of last year. Banking industry profits this year are forecast to grow by more than 20%, much higher than the average of about 15%.
According to VCBS analysis team, the industry's profit margin has recovered from the bottom in Q3/2023, thanks to the absorption of high-priced mobilized capital and the improvement in the rate of cheap demand deposits (CASA). In particular, the private banking group with a large number of regular individual customers has seen its profit margin increase faster thanks to the improvement in the rate of demand deposits (CASA) and the recovery in retail credit as interest rates gradually decrease.
In addition to internal factors in the industry, Ms. Do Hong Van, Head of FiinGroup Data Analysis Department, said that the recent net buying by foreign investors in many stocks such as MSB, VCB, CTG, STB, BID and OCB also significantly supported the upward trend in this group. At the same time, the driving force for the banking industry's price increase also comes from individual stories in each group of stocks such as the plan to sell capital to foreign investors in state-owned banks or pay dividends in some private banks.
"King Stock" Has Long-Term Potential
In recent trading sessions, the price increase of banking stocks has slowed down. According to the observation of the Head of FiinGroup Data Analysis Department, the proportion of transaction value decreased for the 4th consecutive week, heading towards the 10-week low. Foreign investors maintained a net selling status for the 3rd consecutive week.
"These signals show that cash flow into banking stocks is hesitant, but this is a normal development when the industry has just experienced a period of strong price increases," commented Head of Data Analysis Department FiinGroup.
Accordingly, Ms. Hong Van believes that in the short term, cash flow may shift back to groups with low transaction value ratios, prices that have not increased strongly, and supporting stories.
In the long term, according to Ms. Van, banking is still a notable industry thanks to supporting factors. In addition to stories related to foreign cash flow or dividend plans, improvements in asset quality when credit increases again and signals of macro recovery become more solid will help increase cash flow and create price momentum for bank stocks in the coming time.
TCSC's Head of Analysis also predicted that if there is no "black swan" event, the stock market in general will grow sustainably. With the leading role in cash flow, the "wave" of the banking industry may just be beginning. Mr. Binh noted that during the growth process, the market price of this group may have some adjustments, but the upward trend will generally last for the next 2-3 years.
VCBF experts also believe that a short-term correction is entirely possible after a period of fairly good price increases. However, this unit sees many supporting factors including positive business results and attractive stock valuations. Looking at the medium and long term, in fast-growing economies like Vietnam, there is still a lot of room for banks to grow.
Forecasting 2024, VCBS believes that banking industry profits will continue to be strongly differentiated in 2024 with a growth rate of about 10%, some small-scale banks will continue to slow down, even have negative growth. Credit growth is under pressure from the economy and the slow recovery of the real estate market, however, the interest rate level has cooled down to a low level, creating a driving force for loan demand, especially retail and SME credit.
However, bad debt is an issue that experts say many banks need to pay attention to. Ms. Pham Lien Ha, Director of Financial Services Industry Research at HSC Securities Company, noted the risk of bad debt when the asset quality of many banks still faces difficulties and needs further monitoring, relying on the recovery of the market, especially real estate, to handle the problem of bad debt.
According to VCBS's forecast, bad debt on the balance sheet and provisioning levels remain under control thanks to circulars and support policies, and customers will return to repay their debts when the pressure of interest costs is reduced.
However, VCBS also noted that in case Circular 02 on debt restructuring is not extended, the group of banks with a high proportion of corporate credit and a low bad debt coverage ratio may face bad debt risks and increased provisioning pressure in 2024 - 2025. Meanwhile, the group of banks with good asset quality will record bad debt and controlled restructured debt at a moderate level.
Quynh Trang - Tat Dat
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