LPB – Earnings growth to decelerate in FY23-24F – Update

• We forecast LPB’s loan growth will moderate slightly to 12% yoy over FY23-24F from nearly 13% in FY22.
• With net interest margin (NIM) pressure and rising credit risk as key headwinds, we now forecast net profit growth will slow down to 8%/14% yoy over FY23-24F from 57% in FY22.
• Reiterate ADD with higher TP of VND17,400, driven by higher earnings.

FY23-24F outlook: solid earnings growth despite NIM/provision headwinds

Over the next 2 years, we expect LPB’s credit to grow by 12% for each year and NIM to decline by 25bps to ~3.8% from ~4.0% in FY22, which was the strongest level recorded over the past 5 years. We also factor in our model the upfront fee from recent banca deal while assuming more conservative credit costs given current macro challenges. Overall, we increase our FY23-24F net profit estimates by 7-8% to VND4.9tr/5.6tr, respectively. Our revised forecasts indicate solid earnings growth of 8%/14% from high base in FY22.

Asset quality remains under control thus far

Asset quality deteriorated slightly as NPL ratio rose only by 6bps qoq and 13bps yoy to 1.5% at end-FY22. In FY22, the bank wrote off VND1.4tr (+237% yoy) of bad debts, implying write-off rate 0.6% (+42bps yoy). Nearly 70% of write-off amount occurred in 4Q22 as we think the bank took advantage of the upfront fee to write off more aggressively. Loan loss ratio (LLR) continues to be solid at 142% as of end-FY22 vs. 114% at end-FY21. We note LPB carries no corporate bonds and has very limited credit exposure to real estate developers (0.42% of total loans at end-2Q22). However, we are forecasting provision expense to remain elevated over FY23-24F at VND3.0tr/VND3.2tr, respectively, equivalent to ~1.2% of loans (vs. 1.4% in FY22).

LPB may lose its postal transaction offices after VNPost divests its stake

VNPost is scheduled to auction its 140.5m LPB shares (equivalent to an 8.1% stake) on 04/21/23. According to several news outlets, the State Bank of Vietnam has put out a circular draft indicating once VNPost reduces its stake to below 5%, LPB’s postal transaction offices (PTOs) may not accept new term deposits and will have to start returning current term deposits to customers as the deposits mature. The PTOs will be closed after all current term deposits get paid back. Based on 2021 data, LPB operates 613 PTOs, a significant number, besides 76 branches and 480 normal transaction offices. We note the PTOs have long been considered as one of LPB’s key competitive advantages. We do not know how much deposits run through these PTOs to gauge the full impact but we expect to hear more at the upcoming AGM.

Reiterate ADD rating with higher TP of VND17,400

LPB is now trading at only 0.9x FY23F P/B, well below its 3-year average of 1.2x. At this valuation, we continue to see long-term value in the stock. Reiterate ADD with higher TP of VND 17,400. Upside catalysts include (1) stronger-than-expected NIM and (2) private placement to foreign investors. Downside risks include (1) weaker-than-expected loan growth and (2) higher-than-expected bad debt provision.

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