VIB – Awaiting more catalysts – Update

• FY21 net profit surged 38.1% yoy to VND6.4tr, in line with our forecast.
• We expect VIB’s earnings to grow 15%/18% over FY22/23F.
• We maintain TP of VND46,400 and downgrade to Hold as stock valuation stretched.

End FY21 with a juicy performance
FY21 net interest income (NII) soared 39.1% yoy on the back of 26% ytd earning asset growth and 34bps NIM expansion. The bank’s operating expense only rose 18% yoy and its cost-to-income ratio (CIR) dropped to 37% from that of 40% in FY20, reflecting cost-cutting efficiency. A robust NII growth and a better cost control helped VIB provide an upbeat net profit (NP) growth of 38.1% yoy to VND 6.4tr in FY21, 3.6% above our forecast.

NIM compression dent FY22F earnings growth
The bank’s deeply focus on retail lending products, especially mortgage and car loans, will enable it to tap on the rising retail loan demand in the next 2 years; and we expect VIB will represent a steady credit growth of 25%/22% in FY22-23. However, lower lending rate and the rising deposit rates caused by higher inflation and competition for funds will threaten the sector’s NIM in 2022. Banks which can minimize this risk are those having ample CASA mix, low regulatory loan-to-deposit ratio (LDR) and large room to expand retail loan mix, in our view. However, VIB has a low CASA (16% at end-FY21) an already high retail loan mix (87% at end-FY21). Therefore, we see VIB will face NIM pressure in 2022, which offset the high credit growth, resulting in a prudent NP growth of 15%/19% in FY22-23F (CAGR FY19-21 of 40%).

Downgrade to Hold with unchanged TP of VND46,400
VIB is trading at 2.36x FY22F P/BV – much higher than peers’ average of 1.9x and equivalent to its 1SD above average, which we believe its valuation has been already stretched. Downgrade to Hold with unchanged 1-year TP of VND46,400. Our TP is based on the combination of 2.3x FY22F P/BV and residual income valuation approach (COE: 14.5%, LTG: 3%). Downside risks include (i) higher-than-expected inflation which lower credit growth and (ii) higher-than-expected bad debt. Upside catalysts will be (i) a better-than-expect NIM and (ii) new capital raising plan.

Charter capital raising plan by 36%
VIB has announced the plan to offer a bonus issue to its existing shareholders and employees in this year, in which 35% for existing shareholders and 0.7% for its employees. This plan will add by c.554m shares for VIB and the bank’s charter capital will surge by c.36% to VND21.1tr at end-FY22 from VND15.5tr at end-FY21. The increased capital will be used to develop the information system, infrastructure, and especially to sustain the bank’s capital adequacy.

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