VCB – Maintain the 2-digit earnings growth – Update

• 3Q21 net profit (NP) increased 15.1% yoy to VND4,594bn on a 19.5% yoy loan growth and slightly better CIR.
• 9M21 NP grew by 21% yoy, to VND 15,457bn, forming 72.7% of our full-year forecast.
• Reiterate Add rating with a lower TP of VND118,700 following a downgrade on FY21-23F earnings and a rollover to FY22F P/B.

3Q21 recap: highest earnings growth among SOE banks
3Q21 Net interest income (NII) grew 19.5% yoy on 19.4% yoy of credit growth and 22bp yoy NIM expansion. Meanwhile, non-Interest income (Non-II) subdued 1.3% yoy on 10.3% yoy drop of net fee and commission income reduce. 3Q21 total operating income (TOI) grew positively 14.4% yoy to VND13,253bn while operating expenses increased at a slower pace of 9.3% yoy. 3Q21 provision expenses increased 24.1% yoy but still lower than that of 73.7% in 2Q21. All in, 3Q21 NP grew 15.1% yoy to VND4,594bn.

Bad debts slightly picked up
Non-performing loan (NPL) ratio rose to 1.16% at end-3Q21 from 0.74% at end-2Q21 and 0.62% at end 4Q20 – the highest ratio since 2019. We observed that bad debt group 4 & 5 surged 95% and 87% yoy, respectively, at end-3Q21. As a result, loan loss reserves (LLR) dropped to 242.9% at end-3Q21 from 351.8% at end-2Q21 and 370.4% at end-4Q20. Write-off ratio declined to 0.12% in 9M21 from 0.24% in 9M20 and 0.38% in 2020.

We adjust FY21-F23F to reflect the lower-than-expected Non-II
9M21 Non-II grew 16.7% yoy to VND10,236bn below our previous expectation as lackluster bancassurance activities in 9M21 and lower-than-expected income from bad debt recover. Thus, 9M21 earnings grew 21% yoy to VND15,457bn, forming only 69% of our previous forecasts. We adjust our non-II forecast by change the time depreciation upfront payment for exclusive bancassurance contract to 15 years to reflect contract duration and reduce the income from bad debt recover in FY21F due to impact of Covid-19 pandemic. Consequently, FY21-23F net profit were 5.1%/6.0%/7.2% lower versus previous forecasts.

Reiterate ADD rating with a lower TP of VND118,700
We revise down 1-year target TP to VND118,700 following a FY21-23F earnings downgrade and a rollover to FY22F P/B multiple. Our TP based on the equal weight of residual income valuation (COE: 14.6%; LTG: 3.0%) and a target P/B of 3.1x for FY22F book value. Upside catalysts are higher-than-expected NIM and credit growth. Downside risk includes higher-than-expected funding cost

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