LPB – Profitability driven by strong loan growth – Update

• 4Q20 net profit rose 61% yoy to VND466bn, on the back of strong loan growth.
• For FY20 LPB recorded VND1,862bn of net profit, forming 108% of our full-year forecast.
• Reiterate the Hold rating with a higher TP of VND15,900 following a higher P/B target valuation for Vietnam banking sector.

Robust 4Q20 net profit growth on strong loan growth

Net interest income (NII) rose 28% yoy thanks to a striking outstanding loan growth (+26% yoy) – the second highest among HOSE listed banks, mainly driven by individual and SME loans. Non-interest income (non-II) nearly doubled yoy due to a growth in net fee income (+39% yoy) and a VND138bn gain from investment securities. As a consequence, 4Q20 LPB’s net profit increased significantly by 61% yoy to VND466bn.

Asset quality slightly improved

In FY20, the bank ramped up its provision expenses to VND700bn (+61% yoy). Thus, non-performing loan (NPL) ratio was well-managed at 1.4% at end-FY20, lower than the 1.65% level seen during FY20. LPB’s group 2 loan also decreased by 13.5% to VND1,316bn. Besides, its loan loss reserve (LLR) ratio also improved from 85% at end-FY19 to 90% at end-FY20.

We expect EPS to grow at 24% CAGR over FY21-23F

We project a net profit CAGR of 24% over FY21-23F, driven by 18% CAGR in net interest income, on the back of 15% loan CAGR and 19bp NIM expansion over the period. We forecast 18% CAGR in non-II, including 20% CAGR in fee income, for FY21-23F, thanks to income from payment services and bancassurance. On the balance sheet side, we project the non-performing loan and LLR ratios to sustain at 1.6-1.7% and 83%, respectively in FY21-23F.

Reiterate the Hold rating with a higher TP of VND15,900

Our new target price is based on an equal weighting of residual income valuation (COE: 15%; LTG: 3.0%) and a higher target P/BV for FY21F book value. We lift our target FY21F P/BV from 0.8x to 1.0x to reflect a sharp re-rating in the banking sector. As a result, our target price is increased by 21.3% to VND15,900 (previously VND13,100). Thus, we maintain our Hold rating to LPB as the share price is close to fair value. A possible upside to our TP is the success of the private placement for foreign investors. Downside risk is lower-than-expected NIM and higher-than-expected credit cost.

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