ACB – Keep moving, keep shining – Update

• FY21 net profit rose 25% yoy to VND9.6tr, 7% lower than our forecast.
• We expect FY22-23F earnings to grow 25%/18% yoy to VND12tr/14tr.
• Reiterate Add with unchanged 1-year target price of VND41,800.

FY21 results: resilient earnings growth
FY21 net interest income (NII) jumped 29.9% yoy on the back of 16.2% yoy loan growth and 36bps NIM expansion. With a 29.1% yoy growth in non-interest income, ACB has generated a 29.7% yoy growth in total operating income (TOI). Cost-to-income ratio (CIR) declined remarkably to 33% from 42% in FY20, partially offsetting 254.5% yoy of provisioning charges. FY21 net profit (NP) then rose 25% yoy, slightly missed our expectation.

A solid defense has been built
ACB has built up a high loan-loss reserves in FY21 to prevent itself from possible bad debt rising in the next couple of quarters, which increased 99% yoy to reach the all-time-high loan-loss coverage ratio of 209.4% (vs. 160.3% at end-FY20 and stayed at the fourth-highest among peers). Bad debts rose 52% yoy due to Covid impacts but NPL ratio was still benign with 0.77% (vs. 0.59% at end-FY20).

Still a major retail banking play with strong competitive advantage
ACB is well-known as one of the best SME and retail bank in Vietnam and the bank will keep focusing on this field as its long-term development strategy. As being the first mover in Vietnam retail banking market, the bank definitely has a strong moat over Vietnamese banks in retail race with its good foundation and rich experience. In FY22-23F, we still expect ACB to keep a decent loan growth of 17%, in which retail segment continue to be the key driver with +18% yoy growth. Besides, ACB’s already large retail customer base and huge investment in digital banking platform will enable its strong fee income growth and its cost efficiency in the next three years. Moreover, due to ramping up provision and being conservative in lending strategy, i.e. lowest exposures to real estate and unsecured lending, ACB’s asset quality is superior and this will help the bank to weather any bad debt risks in the upcoming time.

Reiterate Add with unchanged 1-year target price of VND41,800
We expect ACB to deliver a robust NP growth of 25%/18% yoy in FY22-23F. Otherwise, ACB is trading at 1.6x FY22F P/BV, 13% lower than peers’ average of 1.9x and only equal to its 1-sd below average. Given the bank’s strong growth in the next two years, we believe ACB should be re-rated to its 5-year P/BV range (1.9x). Our 1-year TP is based on the combination of 1.9x FY22F P/BV and residual income valuation approach (COE: 14%, LTG: 3%). Upside catalysts will be a better-than-expect NIM. Downside risks include (i) higher-than-expected inflation, which lower credit growth and (ii) higher-than-expected bad debt.

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