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ACB – Positive surprise to trigger a TP upgrade – Update

Company Note 03/08/2021    137


  • 2Q21 earnings jumped 70% yoy driven by strong topline growths and historic low CIR of 26%.
  • We raise EPS by 18-24% in 2021-23F on higher forecast of credit and NIM expansions and lower CIR assumption.
  • Reiterate Add rating with higher TP of VND41,800.

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2Q21 stellar earnings growth on topline hikes and lower CIR
2Q21 net interest income (NII) rose 60.4% yoy on 20.4% yoy credit growth and 119bp yoy NIM hike, while non-interest income (Non-II) grew 24.9% yoy driven by a 107.7% yoy net fee income (NFI) rise. Cost income ratio (CIR) plunged to 25.6% in 2Q21 from 43.1% in 2Q20, as operating expense fell 9.9% yoy in 2Q21, attributing to a reversal of VND221bn for bad debt provision. However, the bank aggressively booked provision in 2Q21 with 215.4% yoy. All in, net profit surged 70.1% yoy in 2Q21, highest growth rate in the last 10 quarters.

1H21 recap: strong credit growth, improved NIM
ACB posted 9.7% ytd credit rise in 1H21, higher than that of 5.6% ytd in 1H20. State bank has lifted ACB‘s FY21F credit growth cap to 13.5% from the previous 9.5%. Asset yield fell slightly 53bp yoy while cost of fund sharply dropped 143bp yoy as CASA ratio rose to 21.5% end-1H21 from 17.5% end-1H20. Therefore, annualised NIM hit a historic high of 4.4% in 1H21 (+89bp yoy). On the cost side, CIR fell to 29.9% in 1H21 from 48.7% in 1H20. Hence, net profit rose 65.8% yoy in 1H21 to VND5.1tn, completing 58% our full-year forecast.

Solid asset quality
At end 2Q21, non-performing loan (NPL) ratio fell to 0.68% from 0.91% at end 1Q21; Restructured loan decreased to VND8.2tn at end-2Q21 from VND9.1tn at end-2020, accounting for 2.4% of outstanding loan balance. In 1H21, the bank booked fully provision of VND1,417bn to restructured loan according to Circular 03 instead of allocating in 3 years. Loan loss reserve (LLR) climbed to 207.7% from 120.4% at end-1Q21. Both NPL ratio and LLR remained in the top 3 lowest and highest in the sector, respectively.

Reiterate Add with higher TP of VND41,800
We raise our 2021-23F EPS by 18-24% on following lower-than-previous-expectation CIR, higher credit growth and NIM expansion. Our new TP of VND41,800 is based on residual income valuation (COE: 14%, LTG: 3%), and 2.2x 1-year forward P/B, weighted equally. We lifted P/B multiple valuation to 2.2x from previous 2.0x and rolled over to average FY21-22 book value. Upside catalysts are higher-than-expected loan growth and NIM expansion. Downside risk is higher-than-expected bad debt.

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