MBB – One of the best risk-reward opportunities out there – Update

• MBB’s 1Q23 net profit (NP) grew by 10.5% yoy to VND5.0tr, fulfilling 26% of our previous full-year FY23F forecast.
• With cheap valuation against sustainable ROE in the 20%+ range, MBB stands out as one of the best risk-reward opportunities currently out there.
• Reiterate Add rating with unchanged TP of VND29,300.

1Q23: strong NII growth and well-contained credit costs
1Q23 net interest income (NII) grew by 22% yoy, driven by 13% yoy credit growth and a 10bps expansion in NIM. Non-interest income (non-II) declined by 48% yoy due to (1) a 38% decline in NFI due to poor brokerage/insurance activities, (2) an 85% decline in trading income, and (3) a 21% decline in FX trading gains. On the expenses side, provision and operating expenses were well-controlled and declined yoy by 13% and 1%, respectively. Overall, TOI grew by 3% yoy and NP grew by 11% yoy, which was ahead of our forecast.

Resilient NIM with solid growth in credit and funding
MBB’s asset yield increased by 190bps yoy while its cost of funds (COF) increased by 210bps yoy in 1Q23. As a result, annualized NIM expanded by 10bps yoy to 5.7% (-10bps qoq), which was best-in-class and outperformed our expectation. The bank’s CASA ratio, despite falling in the quarter like most banks in our coverage, remained the highest in the system at 35.5% (-5.1% pts qoq) and contributed to NIM resilience. MBB delivered 3.8%% credit growth ytd, which was better than system growth at 2.1% ytd. Deposit growth was solid at 2.0% ytd led by a 10.5% increase in retail deposits, partially offset by an 8.4% decrease in corporate deposits.

Asset quality weakened but Circular 2 should help control NPL/provision
NPL rose by 75bps yoy and 65bps qoq to 1.8% at end-1Q23. Group 2 as % of loans also rose sharply by 230bps yoy and 180bps qoq to 3.5%. We suspect asset quality deterioration occurred primarily in the real estate space, including both loans to developers and mortgages. MBB’s loan loss ratio (LLR) slid in the quarter from 238% at end-FY22 to 138% at end-1Q23 given the spike in NPL. Although the increases in NPL/Group 2 ratios look alarming, we remain convinced that the MBB will be able to keep its NPL/provision under control this year considering potential benefit from application of Circular 02/23 and recent positive developments in the real estate and renewable energy sectors, where MBB holds sizeable credit exposure.

No changes to our bullish view; reiterate ADD with TP of VND29,300
Given better-than-expected 1Q23 result, we tweak our provision forecasts lower and raise our NP forecasts over FY23-24F slightly by 2.2%/3.0% to VND19.6tr/22.9tr, respectively. We also incorporate cash dividend of VND500/share (2.7% yield) in our model. Overall, we believe much of the headwind/uncertainty around the bank’s asset quality has been priced in as MBB is now trading at only 0.9x FY23F P/B, well below its 3-year average of 1.5x. At this valuation, we continue find stock very attractive for its long-term growth drivers including low COF advantage via top-tier CASA level and diversified ecosystem of financial services via its subsidiaries and affiliates. Thus, we reiterate ADD with unchanged TP of VND 29,300. Downside risks include higher-than-expected bad debts and lower-than-expected credit growth.

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