CTG – Solid assets to sail through headwinds – Update

• FY22, CTG’s NP reached VND16,908bn (+20% yoy) driven by strong growth in non-interest income, fulfilling 102% of our forecast.
• We expect EPS FY23-24F to grow by 11%/21% yoy, higher than previous forecasts as we lift our forecasts of credit growth and NIM.
• Reiterate Add with higher TP of VND35,900 as we increased FY23/24F EPS by 2.7%/7.9%.

Steady FY22 NP growth thanks to non-interest income (non-II) surge

FY22 NP rose by 20%, driven by 13% increase in loan balance yoy and impressive non-II growth. At end 4Q22, CTG’s credit balance grew by 12% yoy, lower than the 15.4% level of the sector. Cir.26 issued at end 2022 has eased its LDR ratio from 82% (according to Cir. 22) to 79%, clearing the path for credit expansion in FY23F. Meanwhile, FY22’s NIM remained on par yoy as the bank was able to lift its assets yield to compensate for the hike of interest rate environment. CTG’s non-II surged by 47% yoy thanks to recording the up-front fee from its exclusive bancassurance deal with Manulife. Even though the bank didn’t disclose the exact amount, we estimated approx. ~VND1-1.2tr to be booked during the year, in line with our expectation.

Asset quality to be the main focus on FY23F

The bank also announced its FY23F guidance in its 4Q22 Investor Meeting. Even though most of the key performances are still waiting SBV’s approval, the BOD shows confidence to target 10-12% in credit growth and 10-15% NP growth in the next year. However, asset quality is still at its forefront given the uncertainties in global and domestic macro environment. Particularly, CTG has reviewed its bad debts classification policy, adding qualitative criteria besides conventional regulations, leading to a surge in group 2 bad debts by 2.5x yoy, lifting its contribution in total outstanding loans from 1.1% to 2.4% at end-FY22.

We project EPS FY23-24F to grow by 11%/21% yoy thanks to stable NIM

Even CTG’s credit growth only achieved 1.6% ytd at end Feb-23, we believe the bank would be able to achieve a solid credit growth of 10% for FY23F, as the recent easing lending rates policies would fuel system’s credit growth, starting from 2Q23. We also lift our NIM forecast to be on par yoy at 3% versus our previous projection of 3.0%/2.8% in FY23-24F thanks to the bank’s proactive strategy. On the expense side, we increase CTG’s credit cost from 1.7%/1.45% to 1.8%/1.5% to reflect the bank’s conservatice stance in asset quality. Overall, we expect CTG’s EPS to grow by 11%/21% over FY23- 24F, 2.7%/7.9% higher than previous forecast.

Reiterate Add with a higher TP of VND35,900

As stated in our recent sector report Asset quality is the key, our take is that asset management is the main theme for 1H23. Thus, CTG is one of our top picks given the bank’s diversified loan mix and low credit exposure to property sector. We reiterate Add rating with a higher TP of VND35,900 as we lifted our EPS forecasts by 2.7%/7.9% in FY23/24F on higher loan growth projections and a target P/B of 1.3x for FY23F book value with equal weight.

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