ACB – Safe and sound – Update

• ACB’s net profit rose 32.4% yoy to VND3.3tr, fulfilling 27% our forecast.
• Thanks to its prudent business model, ACB is among a few banks that might ease the impact from the government’s scrutiny on capital market.
• Reiterate ADD with unchanged target price of VND41,700.

Upbeat 1Q22 results; asset quality remains solid

ACB’s 1Q22 net profit (NP) rose 32.4% yoy to VND3.3tr (meeting 27% our forecast), underpinned by healthy loan growth, robust non-interest income (non-II) and especially reversed provisions. ACB posted a steady loan growth of 5% ytd (+17% yoy) at end-1Q22, in which retail loan is still the key driver (+6% ytd; 63% of total loan balances). Non-II grew 36% yoy on the back of 18.2% yoy growth in fee incomes and abnormal other incomes thanks to debt collections from G6. Notably, based on the previous aggressive provisions in 2021, ACB has been able to reverse provisioning charges in 1Q22 (VND3bn), mostly coming from rescheduled loan reverse. In terms of asset quality, bad debts rose 11.4% ytd and NPL ratio was still benign with 0.82% (vs. 0.77% at end-FY21); loan-loss coverage ratio (LLR) stayed at 188% (vs. 209% at end-FY21).

Prudent banking model helps ACB weather the turbulence

The recent government’s scrutiny on Vietnam capital market led to a panic-selling effect in the stock market and banking sector has been hit hard since Apr-2022. However, ACB recorded the lowest drop in market price compared with the whole banking sector (only -4% vs. sector of -16.6%) thanks to its solid business model. ACB is one of the best SMEs and retail banks in Vietnam and it is well-known as the most conservative bank, reflecting in its sound asset portfolio with no exposure to corporate bonds (c-bonds); hence, the bank won’t suffer from the stricter supervision on c-bond market, in our view. Otherwise, real estate loans made up c.18% of ACB’s lending portfolio; however it mainly comes from mortgage (c.15%), implying a negligible impact when the government has aimed to closely monitor bank loans into property sector.

Valuation was down to 3-year bottom

We still expect ACB’s NP to grow 25%/18% yoy in FY22-23F. Following the recent market correction, ACB’ valuation has been significantly compressed to its 3-year bottom of only 1.23x FY22F P/BV, nearly equal to the 2-SD below average. Given the bank’s capacity to deliver robust profitability and healthy balance sheet in the next three years, we believe ACB could re-rate to P/BV level of 1.9x and this is the good time for investors to accumulate a bank with a sustainable high-growth and high-return in the long run. Our TP is based on the combination of FY22F P/BV of 2x and residual income valuation approach (COE: 14.1%, LTG: 3%). Downside risks include (i) higher-than-expected inflation, which lower credit growth and (ii) higher-than-expected bad debt spike.

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