VPB – Solid parent bank performance while FEC disappointed – Update

• Excluding banca upfront fee in 1Q22, net profit in 1Q23 declined by 41% yoy due to weaker NIM at parent bank and a significant loss at FE Credit.
• Although FEC performance was disappointing, we remain optimistic about the parent bank’s outlook and the overall long-term growth story of VPB, especially now with a huge capital boost from SMBC coming soon.
• Reiterate ADD with slightly lower TP of VND24,800.

1Q23 recap: weak net interest income (NII) and sharply higher provision
1Q23 NII decreased by 4% yoy, priomarily driven by a 140bps contraction in net interest margin (NIM) partially offset by 21% yoy credit growth. Non-interest income (non-II) declined slightly by 2% yoy (ex. upfront fee) as a 22% yoy decline in bad debt recovery and a 4x jump in FX trading losses offset strong NFI growth at 34% yoy. On the expenses side, provision and operating expenses rose yoy in 1Q23 by 55% and 14%, respectively, causing 1Q23 NP to decline by 41% yoy (ex. upfront fee). Overall, 1Q23 NP results trailed our expectation and fulfilled only 15% of our previous FY23 forecast.

Parent bank: strong credit / funding growth but asset quality weakened
VPB’s parent bank delivered robust credit growth of 7.1% ytd in 1Q23, well above system growth of 2.1% ytd and with contribution from both Retail & SME and Corporate segments. Deposit growth was also impressive at 7.8% ytd, much higher than peers as VPB added 2M customers in the quarter. LDR remained strong at 76.0% (-80bps qoq and -30bps yoy). NIM contracted by ~50bps yoy to 5.0% as expected due to pressure from higher COF/deposit rates. Asset quality deteriorated as NPL ratio and Group 2 ratio both increased meaningfully to 3.4% (+60bps qoq) and 7.5% (+340bps qoq), respectively.

FE Credit: restructuring is a must and will take time
FEC continued to miss both internal and external expectations with a pre-tax loss of VND1.8tr in 1Q23 (vs. a VND3.1tr loss in FY22). NPL ratio continued to grind higher in the quarter to 23.4% (+3.2%pts qoq and +8.9%pts yoy); and provision increased meaningfully yoy. Management has stressed FEC is undergoing a comprehensive review & restructuring this year. Given ongoing economic challenges, we expect it will take quite some time for the restructuring process to yield positive results.

Long-term growth story remains intact; reiterate ADD
We factor in our model SMBC private placement deal (1.19bn shares, VND35.9tr proceeds) and cash dividend of VND1.000/share (~5% yield). We trim our FY23-25F net profit estimates by 16%/5%/5%, respectively, primarily to reflect a slower recovery at FEC. Our revised forecasts still imply solid EPS CAGR of 16% for the FY22-25F period (ex. upfront fee from FY22 base). In our view, FY23F will be the toughest year for VPB in the current economic downturn and we fully expect that earnings will rebound strongly starting next year. VPB is now trading at only 1.1x FY23F P/B on our estimate, well below its 3-year average of 1.8x. At this valuation, we continue to find VPB attractive considering the bank’s significant long-term growth potential underpinned by a strong capital base. Therefore, we will be buyers on any stock weakness – reiterate ADD with slightly lower TP of VND 24,800.

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