ACB – Steady as she goes – Update

• ACB’s 1Q23 net profit surged 25.8% yoy to VND4,135bn – filling 26.6% of our FY23F forecast.
• We expect ACB’s Net profit (NP) to grow 14-15% yoy over FY23-24F (FY20-22 CAGR of 33.5%).
• Reiterate ADD with unchanged TP of VND30,000.

Robust 1Q23 earnings growth mostly thanks to better CIR…

ACB’s 1Q23 net profit (NP) surged 25.8% yoy to VND4,135bn (filling 27% of our FY23F forecast) thanks to a healthier CIR (32% vs. 1Q22 of 40%). Although 1Q23 provisioning expenses recorded VND256bn (vs. 1Q22’s reversal of VND2.84bn), the provision/PPOP ratio was only 4.7% – much lower than the previous quarters during 2020-21 (except 2022 as a year of provisioning reversal).

…despite a slowdown in loan growth

Despite a flat NIM and resilient non-II growth (+21% yoy), TOI only increased 15.6% yoy – much lower than NP growth due to a slowdown in loan expansion (+8.2% yoy – figure 6). The weakening economy has dampened consumer spending and the ability to fulfill obligations, thus diminishing loan demand. Otherwise, banks will be more conservative to lend this group to minimize bad debt in this circumstance. As a prominent retail banking name, ACB’s credit balances narrowed by 1% ytd at end-1Q23. Its asset quality also showed negative signals at end-1Q23 (figure 6). However, we expect things will get better since 2H23 as (1) the SBV had two reductions in its policy rates, marking a reversal in the monetary policy; and (2) more supportive policies come out.

A solid banking model is still maintained

ACB is well-known as the most conservative bank, reflected in its sound asset portfolio with no exposure to property developers’ corporate bonds (CB). Otherwise, the property loan proportion mainly comes from the mortgage (c.22% at-end FY22), not heavily focusing on developers. In addition, liquidity position has been strengthened as ACB has actively diversified its funding mix to borrow from interbank, CDs besides customer deposits (figure 6). In terms of deposits, individuals tend to “save money” in the context of a high interest rate environment and weak economic growth (individual deposits have continued their growth momentum until Feb-2023 – see our note here). This trend will benefit the liquidity of banks owning a large proportion of individual deposits like ACB (c.80% funding mix).

Reiterate ADD with a TP of VND30,000

We expect ACB’s NP to grow 14%/15% yoy in FY23-24F (from 2020-22 CAGR of 33.5%). Currently, ACB’s valuation is 1.2x P/B FY23F (vs. average peers of 1.4x), this level still belongs to -1SD range of the 3-year P/B average. Given its capacity to deliver robust profitability and a healthy balance sheet, we believe ACB is still a potential name for investors to accumulate for a sustainable high-growth and high-return in the long run. Our TP is based on the combination of FY23F P/B of 1.4x and residual income valuation approach (COE: 14.8%, LTG: 3%), weighting equally. Downside risks include (1) higher-than-expected interest rates and (2) higher-than-expected bad debt spike.

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