CTG – Asset quality management maximizes profit – Update

• We adjust our rating to ADD with 19.0% upside. We change our TP by 16% while the share price has increased 28% since our last report.
• We adjust our TP to VND39,500 thanks to higher ROE, at 18.3% in FY24 and lower cost of equity (-3.7% point) assumptions.
• CTG’s 1.46x P/B is slightly below the sector average of 1.5x but higher than CTG’s average of 1.3x. We expect the share price to rise even though the P/B will contract slightly to 1.4x as strong ROE boosts BVPS.

Financial Highlights

• Total operating income (TOI) rose +10.0% yoy in 2023 driven by net interest income (NII) (+10.8% yoy) and Non-II (+7.8% yoy).
• We expect FY24 TOI to grow by +11.1% yoy driven by 11.9% growth in NII and 8.7% in Non-II.
• 2023 net profit grew by 17.6% yoy, mainly supported by lower-than-expected provision cost.
• We forecast CTG’s ROE will reach 18.3% in FY24, higher than 17.1% of 2023 driven by the increase of + 26.5% yoy in net profit (NP).

Investment Thesis

Economic recovery with strong FDI will drive credit growth

CTG is one of the largest lenders to FDI companies, leveraging off its strong relationships with foreign banks, such as its strategic investor, MUFG. We forecast 12% FY24 loan growth as the economy recovers and FDI flows increase. We project stagnant NIM though at 2.87% as both AY and COF should decline rapidly in FY24.

Rising credit growth creates opportunities to cross-sell bancassurance

Bancassurance income (included in other fee income which accounted for 40.5% of fee income) declined by around 18% yoy due to the 2023 downturn. We expect CTG’s bancassurance income to rebound in 2024 due to cross-selling on the back of improving credit activities and recovering Vietnamese incomes.

Recovering trade flows will boost L/C income

Increased export-import L/C income will also contribute strongly to increased fee income. CTG accounted for 16.4% of the total trade finance market in 2023. We therefore expect other fee income, 40.5% of 2023 fee income, to be boosted by a rise in L/C income as Vietnam’s export-import activities increase in 2024.

Strong asset quality gives CTG flexibility to boost ROE to meet Basel III

We project NP to rise 25.4% as provision expense is cut by 6.7% yoy as we believe CTG made full provision for all risky loans in 2023 when its LLR reached 167%. As the hardest time of banking industry has passed and CTG’s asset quality stood out in recession since 2023 NPL ratio ranked the 2nd lowest figure in the system, we forecast CTG to cut provision cost to boost its bottom line. In this scenario, FY24 NPL is projected to be 1.16%. The surge in FY24 NP will lift ROE to 18.0% – the bank’s highest ROE since 2013 and bring its CAR closer to Basel III requirements.

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