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VCB – Best positioned for the recovery – Update

Company Note 01/12/2020    299

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  • Most operating metrics improved qoq, and are in good shape to support a year of robust growth in FY21F; we expect 31% net profit growth in FY21F.
  • We reiterate our Hold rating with a higher TP of VND97,700 by lifting our FY21F P/BV target from 2.8x to 3.3x and on lower cost of equity.

Market price

Target price

Dividend yield

Recommendation

Sector

VND 93,000

VND 97,700

0.86%

HOLD

Banks

We expect 4Q20F net profit to see robust growth

We expect 4Q20F net profit to increase 35% yoy on the back of NIM’s resilience. At end-9M20, VCB’s total restructured loans was c.VND10,400bn, ranked 3rd among the listed banks in terms of total amount and equivalent to 1.3% of its gross loans. With a credit stimulus package of up to VND300tr for affected Covid-19 clients, asset yield slipped from 6.2% in 9M19 to 5.9% in 9M20, dampening 9M20 NIM by 25bp yoy to 2.9%. However, we expect VCB’s asset yield to bounce back as the bank’s last credit support package expired at end-3Q20.

Equipped to have the best asset quality among peers

The bank’s asset quality remains top-notch with non-performing loan (NPL) ratio at 1.0% at end-3Q20. Besides, its loan loss reserves (LLR) climbed to 215% at end-9M20 from 185% at end-9M19. This remains the highest in the banking industry even though its write-off rate inched up from 0.12% at end-3Q19 to 0.18% at end-3Q20.

We forecast 25% EPS CAGR in FY20-22F

We project 25% net profit CAGR in FY20-22F, driven by 18.6% CAGR in NII on the back of 14.5% loan CAGR and 37bp NIM expansion over the period. We also forecast 45% FY20-22F CAGR in non-II, including a 57% FY20-22F CAGR in fee income, thanks to income from payment services and bancassurance new income stream. We expect the pandemic situation to be less intense in FY21F, thus boosting commercial finance activities as well as VCB’s fee income. We project NPL to inch up to 1% in FY20 and 1.15% in FY21F as the bank is more exposed to retail lending but its asset quality remains solid with high loan-loss coverage ratio (170-210%) in FY20-21F.

Reiterate Hold with a higher TP of VND97,700

We lift our TP to VND97,700 based on equal weight of residual income valuation with a lower cost of equity (COE: 12%; LTG: 4.0%) and a higher target 3.3x FY21F P/BV (previously 2.8x). While our FY20-22F forecasts are intact, we believe the growing interest among foreign investors in VCB should pave the way for a higher valuation.

Re-rating catalysts and downside risks

Potential re-rating catalyst is a successful capital raising of VND23tr via private placement with higher-than-expected valuation. Downside risks are higher-than-expected credit cost and lower-than-expected credit growth.

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