SMFG to Become Top Shareholder in Vietnam’s VP Bank

We maintain our Sumitomo Mitsui Financial Group 8316 fair value estimate of JPY 6,050, equivalent to 0.67 times 2022 book value and 18% above the March 27 closing price, after the Nikkei newspaper reported that SMFG will take a 15% stake in Vietnam’s VP Bank, making it VP Bank’s largest shareholder.

While the deal is strategically positive for the long term, in our view, given Vietnam’s growth prospects, we estimate that VP Bank’s contribution to SMFG’s total earnings will only be around 3% over the next few years, not large enough to prompt us to change our fair value estimate.

The reported price of VND 35.9 trillion (around USD 1.5 billion or JPY 200 billion) for the shares to be newly issued shares by VP Bank represents about a 68% premium to the current market price, according to our estimate, and values VP Bank at around 2.3 times book value and 13.2 times 2022 earnings.

SMFG’s approach to the Vietnamese market has differed from that of its Japanese megabank rivals Mitsubishi UFJ and Mizuho, as well as from South Korean bank Hana Financial, all of which bought stakes in major state-owned lenders in Vietnam that made them the second-largest shareholder behind State Bank of Vietnam. Mizuho bought 15% of Vietcombank, the number-two bank by assets, in 2012, Mitsubishi UFJ bought 19.7% of VietinBank, the number-three bank by assets, in 2013, and Hana bought 15% of BIDV, the largest Vietnamese bank by assets excluding unlisted AgriBank, in 2019. In contrast, SMFG had bought a 15% stake in privately owned Eximbank in 2007, whose asset size is smaller than the largest state-owned banks.