VCB – Save for a rainy day – Update

• VCB set FY22F guidance of 15% yoy in credit growth and VND30,675bn (+12% yoy) in pre-tax profit.
• We forecast higher-than-guidance pre-tax profit growth of 21% yoy over FY22-23F, following lower provisioning expenses.
• Reiterate Add rating with a higher TP of VND95,600.

Improving CASA to offset the rising cost of fund

Thanks to zero fee transaction scheme effective in 1Q22, VCB’s demand deposit grew 27.6% yoy; 7.3% ytd to bring its current account saving account (CASA) ratio to historical high of 33.4% at end-1Q22; also the fourth highest among commercial banks. We estimate that VCB currently holds 8.5% of country deposit market share, which provides the bank best position to manage the rising cost of fund. Consequently, VCB is among a few banks to enjoy NIM expansion in 1Q22 (24bps yoy to 3.4%). We expect FY22F NIM to stay at 3.2% thanks to high CASA ratio (~35% at end-FY22F) and low loan-to-deposit ratio (~82% at end-FY22F).

VCB will likely acquire a struggling institution

Following the government-approved roadmap, VCB and MBB will acquire, at zero-cost, one of the institutions that are subjected under special supervision by State bank of Vietnam (SBV). VCB will be granted an unlimited credit growth but still maintains the compulsory capital aquedacy ratio (CAR). The financial statement of this institution will not be consolidated into VCB during restructuring phase and SBV will provide 0%-interest-rate loan package in order to solve a part of accumulated loss. After restructuring, VCB is allowed to merge this institution or transfer for potential investors or offer to public (IPO).

Strong net profit growth with best-in-class asset quality over FY22-23F

We project net interest income (NII) to increase 9.5%/14.8% yoy over FY22-23F following 14.5%/13.0% yoy of loan growth and stable NIM of 3.2%. Non-interest income is expected to grow strongly 28.7%/21.3% yoy over FY22-23F thanks to net fee income and net gain from forex exchange. Loan-loss-coverage was 424.4% while NPL was 0.64% at end-FY21, providing room for VCB to lower its provisioning expenses for the next 2 years.

Reiterate Add rating with a new TP of VND95,600

Our 1-year target TP is slightly revised up 2.8% following a FY22-24F earnings adjustment. Negative market sentiments from tight regulations on capital market raise has dampened VCB’s share price, thus offering a chance to accumulate for long-term value, in our view. Downside risks include higher-than-expected inflation that might hinder loan growth and higher-than-expected bad debts.

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