CTG – 2Q21 results depressed on the higher provision – Update

• 2Q21 net profit dropped 38.2% yoy on heavy provisioning.
• 1H21 net profit grew 45% yoy to VND8,668bn, forming 51.6% of our full-year forecast.
• We reiterate Add rating with unchanged TP of VND42,000.

2Q21 recap: Heavy provisioning dragged down net profit
2Q21 net interest income (NII) grew 39.5% yoy on the back of 14.3% yoy loan growth and 58bp yoy net interest margin (NIM) expansion, while non-interest income (non-II) jumped 47.2% yoy thanks to 481.4% yoy increase in other income. Total operating income grew 30.7% yoy, even lower than that of 20.9% seen in 1Q21. However, provision expense spiked 221.9% yoy to VND7,106bn, as the bank ramped up provisioning for restructuring debt following Circular 03, dragging 2Q21 net profit (NP) down 38.2% yoy to VND2,206bn, lower than that 65.9% yoy of 1Q21.

1H21 recap: Strongest earnings growth among SOE commercial banks
Credit grew 5.1% ytd, higher than -0.1% that of 1H20, driven by loan increased 5.5% ytd and 13.9% yoy (mainly in retail and large corporations). CTG aims to propose State bank (SBV) to lift its credit growth limit higher than initial 7.5%. 1H21 cost of fund (COF) fell 129bps yoy to 3.2% as deposit rates were cut down by 90-120bps yoy across all maturity spectrum and CASA ratio climbed to 17.9% at end-2Q21 from 15.7% at end-2Q20. 1H21 asset yield declined to 6.23% from 6.92% in 1H20. We saw NIM improved to its record high of 3.16 % in 1H21. Consequently, 1H21 net profit grew 44.8% yoy to VND8,668bn, fulfilling 51.6% our full-year forecast.

Asset quality show signs of deterioration
Non-performing loan ratio (NPL) inched up to 1.34% from 0.88% at end-1Q21 and 0.94% at end-4Q20. Notably, Group 5 bad debt jumped 106% yoy and 119% qoq as the bank reclassified their debts more strictly, per management. As a result, loan loss reserve ratio (LLR) fell to 129% at end-2Q21 from 155.4% at end-1Q21 and 132% at end-4Q20. Write-off ratio declined to 0.4% in 1H21 from 0.9% in 1H20 and 0.7% in 2020.

Reiterate ADD with unchanged TP of VND42,000
Our TP is based on residual income valuation (COE: 13%, LTG: 4%) and 2x FY21F P/B, weighted equally. CTG has been added to MSCI Frontier Markets Index, which will be effective since early Sep, further lending support to share price, in our view. A potential upside catalyst includes one-off gains from divestment. A downside risk is higher-than-expected funding costs due to more competition for long-term deposits.

Please follow this link for the full report