VCB – A bunker for the stormy days – Update

• VCB’s NP recorded VND29,892bn in 2022 (+36% yoy) in FY22, forming 118% of our full-year forecast, mostly thanks to lower credit cost.
• Asset quality continues to remain on top with lowest-among-peer NPL ratio and highest LLR.
• Downgrade our rating to Hold with a higher TP of VND91,000 as we expect higher NIM and lower provision costs in FY23-25F.

Robust FY22 net profit growth thanks to lower level of credit cost
FY22 TOI climbed by 20% yoy to VND 68,083bn, underpinned by equal growth of NII and non-interest income (non-II). The bank’s credit balance rose by 19% yoy, playing the vital role to spur system’s credit growth to 15.4% as the other SOCBs’ credit growth only reached approx.14% yoy. Adding up, VCB was among a few banks which enjoyed NIM expansion by 24 bps yoy thanks to a reduction of 42bps yoy of its funding cost. We reckon that the bank has shifted its funding mix from customer deposits to interbank deposits which has lower cost in 2H22. At end-FY22, customer deposits composed of 79% of total bank’s mobilization, sharply decline from 89% level at end-FY21. This could be a tactical move of the bank to guard itself against the escalation of funding cost during 2H22. On the expense side, FY22’s credit cost reduced by 41bps yoy to 0.9%, spurring NP growth to 36%.
Asset quality remains on top
At end-FY22, the bank’s LLR reached 317% – sharply reduced from 424% level at end-FY21 – but still the highest among sector. We noticed that the bank had usually maintained its LLR level at 170-180% at pre-Covid but lifted it sharply to more than 300% after-Covid period. Additionally, VCB’s NPL stood at 0.7% at end-FY22 – the lowest among peers. In terms of asset mix, c-bonds continued to remain the lowest contribution in the bank’s total interest earning assets (IEA) mix (less than 1%). Another notable point is VCB’s collateral book value/total outstanding loans was 1.8x at end-FY22, in consistent with its conservative strategy.
FY23F guidance is in line with our forecasts
For 2023, the bank targets pre-tax profit growth by at least 12% yoy – a third of FY22 growth, which is similar to our current projection of 12.6%. We believe this is totally feasible given the bank’s top-tier capital buffer and healthy loan mix. For FY23 credit growth, the bank receives first credit quota of 9.6% but we believe VCB would be able to increase by 12% thanks to strong capital buffer and as the SBV normally lifts its credit limit in the second half of the year.
Downgrade to Hold with higher TP of VND91,000
We increase our TP by 7.5% as we lifted our EPS forecasts by 18%/14%/8% over FY23-25F period following lower funding and provision costs. We downgrade to Hold rating as market price has rallied 13.4% ytd and now approached fair value. A possible upside to our TP is a higher-than-expected private new issuance share price. A downside risk is a higher-than-expected credit cost due to stagnant property sector.

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