CTG – 3Q21 earnings more positive than 2Q21 – Update

• 3Q21 net profit (NP) grew modestly 5.4% yoy to VND2,460bn thanks to 13.2% yoy loan growth and slightly better cost control.
• 9M21 NP surged 34.2% yoy to VND11,172bn, fulfilling 66.4% of our-full year forecast.
• Reiterate Add rating with a lower TP of VND41,700 following a downgrade FY21F earnings.

Net profit slightly grew in 3Q21

3Q21 Net interest income (NII) grew 8.7% yoy on 12.6% yoy credit growth and 22bp-yoy-weaker NIM. Meanwhile, non-Interest income (Non-II) subdued 2% yoy on 34.3% yoy drop of bad debt recovery due to the large-scale social distancing in 3Q21. 3Q21 total operating income (TOI) inch up 6.5% yoy to VND12,255bn while operating expenses slightly decreased 2.7% yoy. 3Q21 provision expenses increased 14.2% yoy, was far lower than that of 222% in 2Q21. All in, 3Q21 NP grew 5.3% yoy to VND2,460bn, better than that of decreased 38.2% yoy in 2Q21.

Asset quality affected by prolonged pandemic

Non-performing loan (NPL) ratio inched up to 1.67% at end-3Q21 from 1.34% at end-2Q21 and 0.94% at end-4Q20. We observed that bad debt group 4 surged 522% yoy while bad debt group 5 decreased 15% yoy at end-3Q21. As a result, loan loss reserves (LLR) dropped to 118.6%% at end-3Q21 from 129% at end-2Q21 and 132% at end-4Q20. Write-off ratio climbed up to 1% in 9M21 from 0.94% in 9M20 and 0.69% in 2020.

We lower FY21 earnings on higher-than-expected provisioning

Credit grew 6.3% ytd in 9M21, higher than 1.8% that of 9M20, driven by loan increased 6.8% ytd and 13.2% yoy (mainly in retail and SME & FDI). Provision expenses jumped 22.2% yoy to VND14,004bn, higher than our previous forecast. Thus, 9M21 net earnings surged 34.2% yoy to VND11,172bn, forming only 66.4% of our previous forecasts. We only adjust provision expenses in FY21F to reflect the impact of Covid-19 pandemic and higher-than-expected in 9M21. Besides, we reiterate our forecast FY22-23F mainly driven by economic recover since FY22F. As a result, FY21F net profit was 21.2% lower versus previous forecasts.

Reiterate ADD rating with a lower TP of VND41,700

We revise down 1-year target TP to VND41,700 (~0.7% lower than previous) following a FY21F earnings downgrade in FY21F. Our TP based on the equal weight of residual income valuation (COE: 13%; LTG: 4.0%) and a target P/B of 1.6x for FY22F book value. Upside catalysts are higher-than-expected NIM and credit growth. Downside risk is higher-than-expected funding costs due to more competition for long-term deposits.

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