CTG – Another solid quarter – Update

• 3Q22 earnings after minority interest grew strongly by 35.7% yoy, taking 9M22 growth to 13.7% yoy and fulfilling 77% of our full-year forecast.
• We expect earnings growth to decelerate into FY23-24F following softer NIM and increasing credit cost.
• Reiterate ADD with a lower TP of VND34,400.

3Q22 recap: widening NIM and strong bad debt recovery

CTG’s 3Q22 net profit rose by 35.7% yoy to VND3.3tr, driven by NIM expansion and strong bad debt recovery. For 9M22, loan balance grew by 10.1% ytd (+14.8% yoy) with robust retail and SME lending. 3Q22 NIM improved to 3.10% (+15bps qoq and +31bps yoy), bringing 9M22 NIM to 2.92% (-17bps yoy). Notably, income from bad debt recovery through 9M22 jumped by 123% yoy to VND4.3tr and was a key contributor to earnings growth. On the expenses side, CTG booked heavy provision in 3Q22 with VND8.3tr (+50% yoy), boosting loan loss reserve (LLR) to 222% at end-3Q22. Overall, 9M22 earnings grew by 13.7% yoy to VND12.6tr, fulfilling 77% of full-year our forecasts.

Gaining more CASA, a highlight in this quarter

Amid tightening liquidity in the system, CTG managed to grow its CASA balance by 1.4% qoq, and thus, pushed CASA ratio up by 55bps qoq to 20.5%. This is better than most peers who experienced weakening CASA sequentially. As of 3Q22, corporates account for the majority of CTG’s CASA balance at 50.0%, followed by retail customers (34.5%) and financial institutions (15.5%).

Earnings growth are likely to slow down in FY23-FY24F

We expect loan growth will continue to be in the 10% range over FY23-24F, which is slightly below our expectation for the system in the 11-12% range. We forecast CTG’s NIM will shrink to 2.80% over FY23-24F from 2.95% in FY22F as COF is set to rise meaningfully due to sharply higher deposit rates. Regarding asset quality, we expect provision expenses will cool down by 1.9%/3.5% yoy over FY23-24F but remain elevated considering high base in FY22F. All in all, under our assumptions CTG’s net profit will grow by 14.1% on average during FY23-24F, down from 17.5% in FY22F.

Reiterate ADD rating with a lower TP of VND34,400

We lower the target P/B multiple to 1.2x from previous 1.6x to reflect heightening sectoral risks related to lower credit growth, shrinking NIM, and rising credit cost. Together with 50% contribution from the residual income approach, we derive a TP of VND34,400, 5% lower than previous TP. Downside risks include (i) lower-than-expected NIM and (ii) higher-than-expected bad debts due to the stagnant property market.

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