TCB – Spring being compressed – Update

• 1Q22 net profit rose 25.2% yoy driven by healthy credit expansion, robust fee incomes and well-controlled credit cost.
• We expect TCB will deliver strong NP growth of 26% yoy in FY22F thanks to a healthy credit growth (22% yoy), stable NIM and credit-cost reduction.
• Reiterated ADD with a lower TP of VND66,400.

Tight regulations on capital market raise concerns for TCB…

The government has aimed to tighten bank loans into property sector and stricter supervision on corporate bond (c-bond) issuance. In Apr-22, SBV required banks to closely monitor the credit flows into property sector and curb credit to those investing in premium properties, tourism and resort properties. Moreover, the regulations on c-bond market (i.e. Decree 153) has been amended for a prudent supervision to ensure the integrity of Vietnam’s capital market. According to VBMA, c-bond issuance volume rose strongly 42% yoy but mainly came from privately-placed c-bonds (c.95% of total issuance), which some cases of principal mobilization for bad practices have been proven. As strongly tapping into property sector and c-bonds, investors therefore have negative sentiments towards TCB, resulting in a 27% drop in its market price since Apr-22.

…but this is a good opportunity for long-term investors

The panic selling has depressed TCB’s valuation as it is trading at only 1.1x FY22F P/BV – 22% lower than peers’ average of 1.46x despite a solid banking platform, robust profitability and healthy balance sheet. We believe TCB will face less risks relating to this regulatory tightening thanks to its unique banking model. Thanks to its self-sustained capital level, TCB will be able to minimize any credit risks even if it has a high exposure to property sector (68% of total corp. loans; 32% of total credit) and c-bonds (17%). Additionally, although the government’s scrutiny posted some short-term hurdles, it is essential for a more sustainable growth of a nascent capital market like Vietnam. As being well-positioned in c-bond market, TCB will be able to ride the growth potentials of the capital market in the next few years.
We maintain our earnings forecast for TCB (+26% yoy), however we lower our P/BV target from 2.1x to 2.0x to reflect the on-going market’s struggle. Combining P/BV approach and residual income valuation approach (COE: 14.2%, LTG: 3%), we derive a lower TP of VND66,400 (-5% vs previous TP). Risks to our call include (i) higher-than-expected inflation and (ii) higher-than-expected bad debt.

1Q22 results: as good as usual

Given strong credit growth (+28.5% yoy) and +6bps yoy NIM expansion, TCB has delivered 32.5% yoy growth in net interest income. Net fee income increased 35.3% yoy, driven by IB fees and payment fees. Meanwhile, provision charges dropped sharply 74% yoy (credit-cost rate of 0.6% from 0.9% in FY21). All in all, TCB’s net profit rose 25.2% yoy to VND5.5tr, meeting 24.2% our forecast. ROE and ROA widened to 21.8% and 3.6% in 1Q22 from 20.1% and 3.5% in 1Q21.

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