TPB – Down but not out – Update

• TPB’s 1Q23 net profit grew 8.8% yoy to VND1,413bn (fulfilling 21% of our FY23F forecast).
• TPB’s NP growth is expected to slow down to 9%/18% yoy in FY23-24F (2020-22 CAGR of 33.6%).
• Reiterate ADD with unchanged TP of VND31,000.

NIM compression dented 1Q23 NP growth
TPB provided a 13% yoy growth of earning assets (+5.3% ytd), in which loan growth of 15% yoy (+7.3% ytd). This loan growth level is higher than the sector’s average thanks to its exposure to corporate lending (+11.6% ytd, incl. SMEs, making up 43.4% of total loans) as their liquidity shortage has spurred loan demand. However, NIM shrank 33bps yoy due to (1) corporate bonds’ struggles (figure 6) and (2) decreasing CASA ratio. Thus, the bank’s top line reduced 3.3% yoy in 1Q23. provisioning expenses dropped sharply 58% yoy, lifting its NP to grow 8.8% yoy (VND1,413bn – fulfilling 21% our FY23F forecast).

Asset quality deteriorated due to macro headwinds
The high interest rate environment has dampened consumer spending and the ability to fulfill obligations, thus diminishing loan demand. Otherwise banks will be more conservative to lend this group to minimize bad debt in this circumstance. As having great exposure to individual lending (56.7% total loans), TPB’s asset quality has deteriorated: NPL ratio spiked to 1.5% (vs. 0.8% at end-FY22) and LLR decreased to 84% (vs. 135% at end-FY22) at end-1Q23. However, we expect things will get better from 2H23, given (1) the effects of supportive measures (see our note here) and (2) the SBV had three-time reductions in its policy rates, marking a reversal in the monetary policy to support economic recovery.

Tension on corporate bond segment has been relieved somewhat
An important issue for TPB is that its great exposure to corporate bonds (c-bonds; 11% of credit balance). Due to the on-going turbulence in c-bonds market, c-bonds balance has narrowed 5.1% ytd (-26% yoy); but this tension could be eased down as Circular 03/0223 has allowed to buy back unlisted c-bonds sold/distributed by them with several conditions. This is one of the ways to accelerate their lending activities via buying c-bonds in the context of weak system credit growth (+3% ytd at end-May) and current abundant liquidity among the banking system. In addition, it will boost c-bonds demand and thus benefit to some active plays in this market, like TPB. However, it also depends on each bank’s risk appetite, as banks have tended to strengthen their balance sheet rather than chasing after growth.

Reiterate ADD with unchanged TP of VND31,000
We expect VIB’s NP growth to slow down to 9%/18% yoy in FY23-24F (2020-22 CAGR of 33.6%). However, we believe TPB’s valuation has reflected all the of headwinds as it is trading at only 0.96x P/B FY23F (peers’ average of 1.2x) – slightly above its -2SD range of 3-year P/B average, implying an attractive entry point. Our TP is based on the combination of FY23F P/B of 1.2x and residual income valuation approach (COE: 14.1%, LTG: 3%), weighting equally. Downside risks include (1) slower-than-expected interest rates cool down, (2) higher-than-expected bad debt spike, and (3) slower-than-expected of policies’ effects.

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