LPB – Better cost control than our expectation – Update

• 2Q21 net profit surged 130.9% yoy to VND740bn, helped by a low base 2Q20. 1H21 NP jumped double yoy, forming 60% of our full-year forecast.
• Reiterate Hold with unchanged TP of VND26,000.

1H21: strong in all facets
1H21 loan balance grew 25.5% yoy or 8.3% ytd, higher than that of 3.5% ytd seen in 1H20. Annualised NIM expanded 63pbs yoy to a record high of 3.6% as cost of fund (COF) fell deeper than asset yield. Asset yield slumped to 8.51% in 1H21 from 8.61% in 1H20 as LPB cut lending rates to support pandemic-hit clients while CoF dropped sharply to 5.2% in 1H21 from 6.0% in 1H20 as deposit rates were cut down by 50-90bps yoy across all maturity spectrum. Consequently, net interest income increased 45.8% yoy to VND4,231bn. Meanwhile non-II grew 75.2% yoy to VND544bn mainly driven by 86.4% yoy growth of net fee & commision income. Cost-to-income ratio (CIR) dropped sharply to 44.4% in 1H21 from 62% in 1H20, much better than our expectation, thanks to lower staff and administrative expenses. 1H21 net profit surge 100.6% yoy to VND1,617bn, forming 60% of our full year forecasts.

Asset quality has considerably improved
Non-performing loan (NPL) ratio dropped to 1.34% at end-2Q21 from 1.43% at end-1Q21 and 1.43% at end-4Q20 as the bank wrote off VND415bn bad debts (~7,003% yoy), bringing write-off ratio up to 0.2% in 1H21 – the highest since 2018. LPB also aggressively booked provisioning with 185% yoy, leading loan-loss reserve (LLR) climbed to 96.5% at end-2Q21 from 94.5% at end-1Q21.

We slightly adjust our FY21-22F net profit forecasts up 1.6%/1.9%
We believe NIM improvement will slow down in 2H21 as banks are lowering their lending rates further in order to support for pandemic-hit clients. Thus, we maintain our NIM forecasts of 3.28%/3.24% over FY21-22F. We lower FY21F-22F CIR to 48%/54% from previous forecasts of 55%, following better-than-expected cost control in 1H21. On the other hand, we lifted FY21 provision expenses 83.6% higher than previous forecast as the bank actively prepared for surging bad debt. Consequently, FY21-22F net profit were slightly up 1.6%/1.9% versus previous forecasts.

Reiterate HOLD rating with a higher TP of VND26,000
We reiterate HOLD rating with TP of VND26,000 based on the equal weight of residual income valuation (COE: 14.6%; LTG: 3.0%) and a target P/B of 1.6x for FY21F book value. Upside risks to our TP are the success of the private placement for foreign investors and an upfront payment fee for exclusive bancassurance contract with higher-than-expected valuation. Downside risk is higher-than-expected credit cost.

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