VPB – Softened 2Q22 after stellar 1Q22 – Update

• 2Q22 net profit (NP) weakened 12.7% yoy to VND3,508bn following higher operation and provisioning expenses.
• 1H22 pre-tax profit grew 67.9% yoy to VND15,323bn mostly boosted by the bancassurance upfront fee in 1Q22.
• Reiterate Add rating with lower TP of VND44,400 as we make downward adjustment on P/B multiple target.

2Q22 recap: Heavy expenses weigh on bottom line growth

2Q22 consolidated net interest income (NII) increased 13.4% yoy mainly thanks to 26.3% yoy of loan growth and softer NIM than 2Q22. Non-interest income was almost unchanged as the increase of net fee income offset the loss of securities investment. Operation expenses rose 25.1% yoy due to wage increase and staff expansion, bringing its CIR to 26.5% in 2Q22, higher than that of 16.4% in 1Q22 and 23.4% in 2Q21. Provisioning expense jumped 33% yoy, lifting the credit cost to 5.8% in 2Q22, higher than that of 5.1% in 2Q21.

For 1H22, VPB posted VND15,323bn in net profit (+67.9% yoy), mostly boosted by the bancassurance upfront fee payment of VND5,500bn in 1Q22. Loan balance grew 10.5% ytd, higher than 6.9% ytd in 1H21 while NIM decreased 145bps yoy to 7.6%.

FE Credit likely miss the bank’s target

According to our estimate, FE Credit ‘s loan balance was compressed by 2.1% qoq in 2Q22 and almost unchanged versus end-FY21. Provision expenses grew 14.9% yoy dragged FE Credit ‘s pre-tax profit plunged 222% yoy in 2Q22 and recorded VND130bn (89% yoy) for 1H22, far behind the bank‘s initial target of VND4,000 – 5,000bn.

Asset quality show signs of deterioration

In 1H22, FE Credit reported a sharp increased 113% yoy in NPL, bringing its NPL ratio was about 15.1% at end-2Q22, in our estimated. Consolidated NPL ratio inched up to 5.25% at end 2Q22 from 4.83% at end 1Q22 and 4.47% at end 4Q21. LLR improved to 62.6% at end 2Q22 from 60.9% at end-FY21.

Reiterate Add rating with lower TP to VND44,400

We made a significant upward adjustment in FY22-24F EPS following the bancassurance upfront fee payment of VND5,500bn in 1H22. However, we lower our P/B multiple target to 2.0x from the previous 2.2x to reflect the banking tight credit growth limit. Downside risks include higher-than-expected inflation that might hinder loan growth and higher-than-expected bad debts. Upside catalyst is the possibility of a private placement for strategic investor.

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