CFA Institute Research Challenge Season 3 (2020-21): Report
Date
2022-06-10
Journal Title
Journal ISSN
Volume Title
Publisher
Cambodia Community of Investment Professionals
Abstract
Description
We initiate ABC with a SELL rating based on one-year target price of KHR 12,049 – representing 29% downside to the last close share price of KHR 16,860 on 08 January 2021. The target price is based on dividend discount model (DDM), a widely adopted valuation method for banks. ABC is a medium-sized commercial bank in Cambodia with a focus on corporate and SME banking. ABC’s extensive branch network and its strong balance sheet position supported by Cambodia’s highest retail deposits will continue to give the bank competitive edge, though these no longer provide a wide economic moat. While ABC remains the market leader today, the gaps in deposits, credit, and revenue between ABC and its competitors are rapidly shrinking. Increasing competition in an already saturated banking sector has led to more aggressive local lending to attract customers and has put pressure on interest rates and yields. ABC has struggled to maintain its market share, especially in urban areas, against competitors with much stronger digital banking offerings. ABC’s low risk approach of keeping away from volatile sectors such as hospitality and real estate have largely spared it from the impacts of Covid-19 but a significant portion of its portfolio remains in the low-growth agriculture sector. These factors together will continue to limit ABC’s revenue growth in the coming quarters. Given its wide physical footprint, ABC’s expenses are the highest among its peers despite continued cost-cutting and digitalization efforts. We see significant downside risk to ABC as increasing competition, a subdued business environment, and low growth in key ABC sectors will continue to put downward pressure on ABC’s bottom line.