MBB – Long-term growth drivers remain intact – Update

• Against a challenging macro backdrop, we expect MBB’s credit growth to moderate to 17% yoy over FY23-24F from 25% in FY22.
• Coupled with higher cost of funds (COF) pressure and rising credit risk, we forecast the bank’s net profit (NP) growth to slow down to 10%/16% yoy over FY23-24F, respectively, after strong FY22 of 38% yoy growth.
• Reiterate Add rating with a lower TP of VND29,300.

Strong credit growth and NIM performance drove earnings growth in FY22
MBB delivered 25% credit growth yoy in FY22, among the highest in our coverage, driven by robust loan growth of 27% yoy. Deposit growth was also strong at 15% yoy as MBB succeeded in attracting nearly 7m new customers during FY22 to bring the number of customers the bank served as of end-FY22 to 20m. With strong customer acquisition, MBB surpassed TCB to achieve the highest CASA ratio in the system at 40.6% at end-FY22 (-1.8% pts qoq and -8.1% pts yoy). FY22 NIM improved by ~70bps to 5.8%, which is also among the highest in the system. Overall, MBB delivered strong NP growth of 38% yoy in FY22.

NPL ratio remains under control so far with high LLR but risks are rising
Asset quality deteriorated slightly as NPL ratio rose only by 5bps qoq and 20bps yoy to 1.1% at end-FY22. During FY22, the bank wrote off VND4.4tr (+24% yoy) of bad debts, implying write-off rate 1.1% (flat yoy). For MBB and other banks with relatively heavy exposure to the corporate bond market (~9% of total credit for MBB) and the real estate and construction sectors (30-35% of total credit, including mortgages), asset quality has been the biggest concern for investors. However, we note MBB’s loan loss ratio (LLR) continues to be strong at 238% at end-FY22 vs. 268% at end-FY21, which should help mitigate the bank’s provision burden under adverse scenarios. We currently forecast MBB’s provision expenses will increase by 26%/14% yoy during the FY23-24F period, respectively, to VND9.9tr/VND11.3tr – which equate to ~2.0% of average loans vs. 1.9% in FY22.

FY23-24F outlook: slower earnings growth but profitability remains strong
We expect MBB’s credit growth to slow down to 17% yoy over FY23-24F from 25% range over the past 3 years following SBV‘s initial guide of 14-15% for the system in FY23F. We forecast NIM will decline by 15bps to 5.6% in FY23-24F from FY22 level due to higher COF. Regarding operating expenses, we expect cost-to-income (CIR) ratio will improve slightly to 32.3%/32.0% in FY23-24F from 32.5% in FY22. Overall, FY23-24F NP is expected to grow 10%/16% yoy, to VND19.2tr/VND22.3tr. Under our forecasts, profitability will remain strong with ROE in the 21-23% range.

Headwinds largely priced in; reiterate ADD rating with lower TP of VND29,300
We believe much of the headwind / uncertainty around the bank’s asset quality has been priced in as MBB is now trading at only 0.8x FY23F P/B, well below its 3-year average of 1.5x. At this valuation, we continue find MBB attractive for its long-term growth drivers including low COF advantage via top-tier CASA level and diversified ecosystem of financial services via its subsidiaries and affiliates. Thus, we reiterate ADD with slightly lower TP of VND 29,300. Downside risks include higher-than-expected bad debts and lower-than-expected credit growth

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