The recent commercial banks’ purchase of treasury stocks was evaluated as a move to “save” the stocks price in the context that the bank’s share price is moving in the opposite direction with the general the situation of the market as well as the business results of the banks themselves.
Recently, Vietnam’s stocks market witnessed the wave of repurchase of treasury stocks of many businesses, typically commercial banks, including HDBank, VPBank, MBBank, TPBank. Specifically, most recently, Ho Chi Minh City Housing Development Commercial Joint Stocks Bank (HDBank) is expected to spend about 1,250 billion VND to buy up to 5% of chartered capital as treasury stocks. Reportedly, the capital source for HDBank to achieve this goal will come from the equity surplus, undistributed after-tax profit and other equity funds used to supplement the charter capital.
Its board of managers believes that HDBank’s share price will grow positively soon, and that buying treasury stocks at current prices will not only help stabilize stocks prices, but it will also be an investment to bring back high efficiency for banks and shareholders.
Before HDBank, also to stabilize stocks prices, reducing the number of outstanding stocks to increase the profit-per-share ratio for investors, the Board of Directors of Vietnam Prosperity Joint Stocks Commercial Bank (VPBank) has proposed a plan to repurchase treasury stocks. Accordingly, VPBank will buy up to 50 million stocks in the market, equivalent to 1,976% of charter capital to make treasury stocks. The estimated time of purchase is in Q4-2019. The capital to buy these stocks is from the undistributed after-tax profits as of the end of 2018.
To buy 50 million stocks, the bank will spend at least 1,025 billion VND. VPBank currently has more than 73.2 million treasury stocks, equivalent to 2,894% of charter capital. If the purchase of 50 million treasury stocks is successful, the bank will hold a total of approximately 5% of the treasury stocks.
Also from the beginning of 2019, two other banks have purchased large amounts of treasury stocks, Tien Phong Commercial Joint Stocks Bank (TPBank) and Military Commercial Joint Stocks Bank (MBBank). In particular, MBBank bought more than 47 million treasury stocks out of a total of 108 million registered units.
It is estimated that MBBank spent VND 1,035 billion to buy these stocks at an average price of VND 22,000 / share. Meanwhile, TPBank also completed the acquisition of 24 million treasury stocks with the total amount of money estimated at nearly VND 627 billion, equivalent to the average purchase price of VND 26,117 per share, raising the percentage of treasury stocks to 3.5% of charter capital. However, the current price of TPBank is only VND 22,300 / share, significantly reduced compared to the average purchase price.
In the opposite direction, while many other banks spend a significant amount of money to buy stocks as treasury stocks, Asia Commercial Bank (ACB) announced to sell more than 35 million treasury stocks, and the price is not lower than 23,100 VND / share. The total trading value if sold at the minimum price of VND 23,100 / share is more than VND 813 billion. The bank said the purpose of selling more than 35 million treasury stocks this time is to increase capital for business activities.
The positive effects of buying treasury stocks on shareholders’ interests are undisputed. In theory, this action will help “concentrate”, reduce the number of outstanding stocks, thereby increasing the earnings per share (EPS). When the number of outstanding stocks decreases, the EPS will increase, helping the company’s P / E ratio and profitability ratios of ROA, ROE ... become more attractive in the eyes of investors.
Besides, buying treasury stocks is also considered as a financial investment decision of businesses, because after buying treasury stocks, if the business is good, the probability of stocks price growth is high. Then, if businesses sell treasury stocks and earn profits, it will increase the equity surplus. Thus, both in the short term as well as in the long run, buying treasury stocks brings significant benefits to the shareholders of the business.
For commercial banks, the purchase of treasury stocks has also been evaluated as a move to “save” stocks prices. Since the beginning of the year, the VN-Index has increased by more than 14%, but the stocks prices of most listed banks have been in the opposite direction. In the top 5 bank stocks with the largest market capitalization, Techcombank’s TCB code has a market capitalization of 15% compared to early 2019.
TCB is trading at around VND 22,000 / share, down about 40% from the price of VND 36,000 / share (adjusted price) when it first hit the the floor in June 2018. Many other bank stocks also lost market value compared to the beginning of the year, including ACB (down 25%), STB (down 8%), SHB (down 12%).
Meanwhile, statistics from the first six months of 2019 business reports of 25 banks in the system showed that the total value of profits recorded by banks reached over VND 53,076 billion, up 18.4% compared to the same period last year. Vietcombank still holds the first position of profit in the system with over 11,300 billion VND and increasingly far away from the remaining banks. Similar to the first six months of last year, Techcombank and VietinBank continued to rank 2nd and 3rd in terms of profits, reaching VND 5,662 and VND 5,335 billion. MBBank climbed to the fourth position with 4,875 billion VND in profit. VPBank followed closely behind with VND 4,343 billion in profit in the first half of the year.
With the business results in the first half of the year, as well as the overall 2019 forecast, are still positive, the decline of many top bank stocks recently seems to be a paradox. However, it should be noted that although the business results of the whole system have grown well, the degree of differentiation among the members is enormous. Therefore, the selection of bank stocks with positive fundamentals and attractive valuation has required investors to have the ability to “offer sand to find gold” to gain “sweet fruits”.
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