TCB – Up and coming – Update

• TCB’s FY21 net profit rose 46.4% yoy to VND18tr, 5% above our forecast.
• We estimate FY22F earnings to grow 26% yoy to VND22.7tr.
• Reiterate Add with a higher 1-year target price of VND70,000.

2021 was another successful year for TCB…
Given strong credit growth (+26.5% yoy) and NIM expansion (+82bp yoy), TCB has delivered 42.4% yoy growth in net interest income (NII). Non-interest income (non-II) grew positively by 20.3% yoy, of which net fee income (NFI) increased 41% yoy. Bancassurance and payment fees are the two key drivers to NFI growth with 88% yoy and 40% yoy, respectively. Meanwhile, provision charges only increased 2% yoy (credit-cost rate of 0.9%). All in all, TCB’s profit rose significantly 46% yoy to VND18tr (5% above our forecast).

…with solid operating metrics
FY21 NIM improved by 82bps yoy to 5.7% – the second-highest NIM among Vietnamese banks, driven by (i) rising CASA (50.5%) and (ii) retail lending expansion. LDR and CAR remained healthily at 77% and 15%, respectively, which will support its balance sheet growth over the next 3 years. Bad debts rose by 77% yoy in FY21 as a result of the pandemic, but the NPL ratio was manageable at 0.66% by end-FY21 (vs. 0.5% at end-FY20), lowest among banks. Loan-loss coverage ratio stayed at high level of 163% at end-FY21 (171% at end-FY20). ROE and ROA widened to 21.7% and 3.6% from 18% and 3% in FY20, to be the most profitable Vietnamese bank.

Moving to 2022 with confidence
We forecast TCB’s loan growth to reach 22%/21% in FY22-23F. Given its strong CAR (15% vs. peers of 9-12%), TCB can get a higher-than-sector credit quota this year. NIM will be solid at 5.7% in FY22-23F thanks to its industry-leading CASA, which offsets the pressure of increasing funding cost. We estimate FY22F provisions to inch up 5.6% yoy (credit-cost rate eases to 0.7% from 0.9%) thanks to solid asset quality. We expect TCB to deliver an upbeat net profit growth of 26%/21% yoy in FY22-23F. Robust earnings growth will underpin the bank’s ROA and balance sheet leverage (TCB’s leverage is the lowest compared to peers: 6x vs. 11.8x peers’ average).

Reiterate Add with a higher 1-year target price of VND70,000
TCB is trading at 1.6x FY22F P/BV, lower than peers’ average of 1.9x despite its well-prepared banking platform, clear competitiveness, strong earnings power and healthy balance sheet. Our 1-year TP is based on the combination of 2.1x FY22F P/BV and residual income valuation approach (COE: 13.9%, LTG: 3%). The potential IPO of brokerage subsidiary TCBS is a strong upside catalyst for TCB. Downside risk includes (i) higher-than-expected inflation, leading to a lower credit growth and (ii) higher-than-expected bad debt spike.

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