VIB – Every cloud has a silver lining – Update

• 2Q22 net profit (NP) surged 27.8% yoy to VND2.2tr thanks to a robust NII and a lower CIR. 1H22 NP grew 27% yoy, fulfilling 54% our forecast.
• We expect VIB’s earnings to grow 21%/18% yoy over FY22-23F.
• Attractive valuation; upgrade to Add with unchanged TP of VND34,400.

A commendable 1H22
2Q22 NP surged 27.8% yoy given (i) a 25% yoy growth in net interest income (NII) rose 25% yoy on the back of 25.8% earning asset growth and stable NIM and (ii) lower cost-to-income ratio (CIR reduced to 33% compared to 35% in 2Q21). In 1H22, a robust NII growth (+25.7% yoy) and a better cost control has helped VIB deliver an upbeat NP growth of 27% yoy to VND4.0tr, fulfilling 54% our forecast. Asset quality was well-managed with NPL ratio of 1.7% (1.7% at end-FY21) and LLR of 54% (51% at end-FY21). The bank’s restructured loans fell sharply to 0.19% of total loans (0.5% at end-FY21).
We expect VIB’s loan growth to slowdown in 2H22…
VIB had a good start in 1H22 with 10% ytd loan growth (vs. 9.4% of system credit growth), higher than that of 8% in the same period last year, in which mortgage loans accounted for c.50% in total retail loans book. However, inflation pressure and the scrutiny on capital market will put a lid on credit growth in the second half of this year, especially credit into property sector. Hence, as a bank with a deep focus on mortgage, we expect that VIB will witness a slower loan growth in 2H22 to reach 18%/20% for FY22-23F, lower than our previous forecasts of 25%/23%.
… but NIM compression could be minimized
VIB’s annualized NIM remained unchanged in 1H22 with 4.5%. Moving to 2H22, the rising deposit rates caused by inflation will threaten the sector’s NIM in overall; but we believe VIB could partially mitigated this risk thanks to good exposure to mortgage loans. Mortgage rate has climbed up noticeably to defend with limited credit room in 2H22 and it is expected to keep increasing until 2023. Thus VIB will be able to maintain robust asset yields, partially covering the rising costs of funds to protect its NIM, in our view. We forecast VIB’s FY22F NIM will stay at 4.3%, 10bps lower than the level of FY21 of 4.4% (vs. previous forecast of -30bps).
Price correction offers opportunity to ADD
In overall, we estimate VIB will deliver 21%/18% of NP growth in FY22-23F. Inflation and capital market scrutiny have cast a shadow on the banking sector and VIB is not an exception, resulting in a 24% drop in market price since its peak in Apr-2022. The price correction has strongly depressed VIB’s valuation to 1.6x FY22F P/BV, nearly equal to minus 1SD range despite its strong growth and profitability. We lower the P/BV target from 2.3x to 2.0x to reflect the banking tight credit growth limit but increase the EPS by 5.4% for FY22-23F. Thus, our 1-year TP stays unchanged at VND34,400. Downside risks include higher-than-expected inflation and bad debt spike.

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