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TCB – Buoyed by strong credit growth and ample CASA – Update

Company Note 27/07/2021    206


  • 2Q21 net profit jumped 67% yoy on solid topline hikes and improved CIR.
  • We raise EPS 2021-23F by 24-27% on higher forecasts of credit growth and NIM as well as lower assumptions for CIR and credit cost.
  • Reiterate Add with higher TP of VND57,200.

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2Q21 recap: strongest earnings growth among banks under our coverage

2Q21 net interest income (NII) grew 67.3% yoy backed by 35% yoy credit growth and 157bp yoy NIM hike. Non-interest income (Non-II) rose 44.2% yoy, mainly driven by net fee income rise of 31% yoy. Hence, total operating income grew 60% yoy in 2Q21. On the expenses side, cost-income ratio (CIR) fell to 28.1% in 2Q21 from 28.7% in 1Q21 and lower than 29.5% in 2Q20. Provision expense rose only 36% yoy, bringing 2Q21 net profit to grow 67.2% yoy, strongest rise among banks under our coverage.

1H21: ample CASA to boost NIM expansion

Techcombank (TCB)’s credit expanded by 12.6% ytd at end-2Q21, higher than that of 3.5% ytd at end-2Q20, driven by 16.2% ytd of retail lending hike, 11.6% ytd wholesale lending growth and 11.3% ytd corporate bond rise. Hence, 1H21 asset yield rose 24bp yoy to 7.8% on stronger retail lending rise; while cost of fund fell 128bp yoy on improved CASA ratio to 46% at end-1H21 from 34% at end-1H20. Therefore, annualised NIM surged by 135bp yoy in 1H21 to 5.8%, 2nd highest among banks under our coverage. CIR fell to 28.4% in 1H21 from 32.5% in 1H20. All in, 1H21 net profit jumped by 72.7% yoy to VND9,108bn.

Solid asset quality and strong capital buffer

At end-2Q21: non-performing loan (NPL) ratio fell to 0.36%, staying lowest level among peers; while loan loss reserve (LLR) jumped to 259%, remaining 2nd highest in the sector; also, restructured loan continuously fell to VND2.7tn, in line with the economic recovery. Meantime, CAR of 15.2%, maintained highest among peers, secures TCB more space to boost credit growth.

We forecast net profit CARG of 20% in 2021-23F

We forecast NII CAGR of 18% on 17% credit CAGR and 15bp NIM increase; retail and WB lending drives credit to grow while NIM expands backed by increasing LDR and CASA ratio. We expect NFI CAGR of 30%. We estimate CIR to be flat yoy at 32% while a credit cost of c.0.8% suffices to maintain healthy asset quality. Hence, we forecast net profit CAGR of 20% in 2021-23F.

Reiterate Add with higher TP of VND57,200

Our new TP is VND57,200, based on residual income valuation (COE: 12.7%, LTG: 4%) and 2.2x FY21F P/BV, weighted equally. We raise our P/B valuation multiple to 2.2x from previous 1.7x in order to fully reflect the bank’s better earnings prospect in 2021-23F. Upside catalyst is higher-than-expected credit growth. Downside risk is lower-than-expected NIM expansion.

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