CTG – Ripe for the picking – Initiation

• CTG is a well-regarded state-owned commercial bank with an extensive network, playing a critical role in Vietnam’s national welfare.
• Its large corporate client base would support a gradual shift in loan mix to higher-yield segments such as retail lending, in our view.
• We initiate with an Add rating and TP of VND53,700.

Initiate with an Add rating and TP of VND53,700/share

We initiate coverage on Vietinbank (CTG) with an Add rating, and TP of VND53,700, based on residual income valuation (COE: 13%, LTG: 4%, 50% weighting) and 2x FY21F P/B (50% weighting). Currently, CTG is traded at 1.6x FY21F P/B, which is slightly discount to peers. We think the risk-reward is quite attractive for a bank with average FY21-22F ROE of 19%.

Our rating is underpinned by

(1) CTG is well-positioned to tap into retail banking thanks to its extensive customer base and network branches. (2) We see opportunities for CTG to untangle the bottleneck for capital raising which has hindered the bank’s growth for years. (3) We expect an imminent exclusive insurance partnership with Manulife, which would generate a new income stream to boost the bank’s fee
income growth.

Promising dividend plans

According to CTG’s AGM on 16th Apr, State Bank of Vietnam (SBV) only assigned the bank with 2.1% yoy for FY21F pretax profit growth and 7.5% yoy for credit growth. However, the Chairman was confident with a target of 10-20% earnings growth and has submitted this plan for approval. 1Q21 prelim profit before tax was about VND7,000-8,000bn (~ +130% yoy ~ +160% yoy). Additionally, the bank is seeking for SBV’s approval for a FY17-18 share dividend plan of 28.8%. For FY20, the bank will pay 5% cash dividend and about
12.7% – 17.8% share dividend.

We project FY21-23F net profit CAGR at 24%

We expect CTG’s profit growth to be fueled by 1) an 8% loan CAGR; 2) a 10bps NIM gain thanks to the bank’s reorientation towards retail lending; and 3) a 23% CAGR for non-interest income over the period. We project the provision expense CAGR to decrease 7% pts in FY21-23F from 13.3% growth in FY17- 20 after CTG had cleared all VAMC bonds in FY20.

Upside and downside risks

A potential upside catalyst for CTG is a higher amount of the one-off income from its exclusive bancassurance deal. A downside risk is higher-than-expected funding costs due to more competition for long-term deposits.

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