TCB – Cautious but confident – Update

• TCB’s 3Q22 earnings grew 22.1% yoy, taking 9M22 pace to +23.5% yoy, fulfilling 74% our full-year forecast.
• Amid sectoral headwinds, we expect NP growth to slow down over FY23-24F following weaker credit growth, softer NIM and higher credit cost.
• Current valuation is attractive at 0.6x P/B FY23F. Reiterate ADD.

3Q22 results: inline with our expectations

TCB’s 3Q22 net profit (NP) rose 22.1% yoy given a steady credit growth, robust fee incomes (+42% yoy) and softer provisioning expense. Credit balances expanded 11.1% ytd at end-3Q22, which retail loan grew 37% ytd (making up 49% of credit balances), offsetting a significant drop of corporate bond (c-bond; -30.7% ytd). TCB has less pressure to build up its defense with the help of a chunky provision, resulting in only 3.5% yoy increase in provisioning expense. For 9M22, TCB’s NP reached VND16.6tr (+23.5% yoy), fulfilling 74% of our FY22F forecasts.

Banking sector outlook: a bumpy road ahead

Together with the global market, VND continues to deal with US$ strengthening pressure, forcing SBV to put more interventions besides relying on selling US$ reserve. After widening the VND trading band, the SBV recently made a second consecutive 100bps hike on its policy rates and this rate hike will inevitably impact banks’ NIMs due to rising costs of funds (COF). Besides, “liquidity constraints” issue among Vietnam corporates and property market’s struggles will threaten banks’ asset quality. In overall, due to the tightening monetary policy and macro uncertainties, banks’ FY23-24F outlook will see elevated risks relating to weaker credit growth, softer NIM and higher credit cost.

Corporate bond market: not out of the wood yet

Vietnam c-bond market has faced a boycott due to the authorities’ tightening on privately placed c-bond via a series of investigations and Decree 65 revision. Currently, investors are losing faith to c-bond issuers’ integrity as many cases of principal mobilization for bad practices were found and lots of Vietnamese executives were arrested. As an active play in c-bond market (c.10% credit mix and c.33% of fee incomes generated from c-bond underwriting and distribution), TCB’s bottomline is still under stress, in our view.

Reiterate ADD with a lower TP of VND44,000

We expect TCB’s NP to grow modestly 12-14% yoy over FY23-24F. We downgrade the target P/B of TCB to 1.1x from 2.0x to fully reflect the sectoral headwinds; together with a 50% contribution from residual income approach (COE: 15.3%, LTG: 3%), we derive a new TP of VND44,000 (-29% vs. previous TP). Currently, TCB is trade at only 0.6x P/B FY23F, which is largely priced the negativities, in our view. Risks to our call include (i) higher-than-expected rate hike, (iii) higher-than-expected bad debt spike, (iii) the prolonged scrutiny in property and c-bond market.

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