VPB – Strong lending activity at parent bank to drive profit growth – Update

• 4Q22 net profit declined by 6.7% yoy to VND2,266bn, primarily due to higher operating expenses and heavy provision of FECredit (FEC).
• For FY23-24F, we expect VPB will deliver healthy earnings growth of 25%/24% yoy (ex. upfront fee from FY22 base), with the key drivers being strong growth in credit and net fee income (NFI) at the parent bank.
• Reiterate ADD with slightly lower TP of VND25,700

4Q22 recap: negative earnings growth due to higher provision/opex
4Q22 NII increased by 20.6% yoy, driven by 26.0% yoy credit growth and relatively flat NIM yoy. Non-interest income (non-II) declined slightly by 2.5% yoy, driven by strong NFI growth at 57.3% yoy offset by a 94.2% yoy decline in trading income. On the expenses side, provision and operating expenses rose sharply yoy in 4Q22 by 36.3% and 42.4%, respectively, causing 4Q22 NP to decline by 6.7% yoy. For FY22, earnings grew 53.9% yoy, respectively, or 16.7% when excluding the upfront fee from banca deal with AIA.
Parent bank: strong across most facets
VPB’s parent bank delivered 30.9% credit growth yoy in FY22, the highest in the system, driven by robust loan growth of 29.2% yoy, with particular strength in the retail and SME segment (+36.8% yoy). Deposit growth was also impressive at 28.5% yoy, much higher than peers as VPB continued to attract new customers with its VPBank NEO app. 4Q22 LDR edged up slightly to 76.8% (+30bps qoq and +110bps yoy). NIM expanded by ~20bps yoy to 5.5%. Asset quality deteriorated as NPL ratio rose by 80bps yoy to 2.8% but only 15bps qoq.
FECredit: Slower-than-expected recovery drove NPL to swell
Per management, FECredit’s recovery was much slower than expected as unfavorable economic conditions continued to negatively affect low-income individuals, which are the core customers of FEC. As such, NPL spiked sharply in 4Q22 to 20.4% (+6.8pts yoy and +5.4pts qoq) and provision increased meaningfully yoy by 82% in 4Q22 and 23% for FY22. For FY22, FEC recorded a pre-tax loss of VND3tr. Given the current challenging macro picture, we expect FY23 will be another tough year for FEC, and thus, we forecast the segment will incur pre-tax loss of ~VND700bn this year before turning profitable in FY24F.
Headwinds priced in; reiterate ADD
We trim our FY23-24F net profit estimates by 16%/15% to VND17.2tr/VND21.2tr as we forecast lower NIM due to higher deposit rates/COF and assume more conservative provision given deteriorating asset quality. Our revised forecasts still imply healthy earnings growth of 25%/22% yoy (ex. upfront fee from FY22 base). Importantly, we believe these headwinds have been priced as VPB is now trading at only 1.0x FY23F P/B, well below its 3-year average of 1.7x. At this valuation, we continue to find VPB attractive considering its strong growth profile backed by leading CAR and upside catalysts including private placement and potential cash dividend. Reiterate ADD with slightly lower TP of VND 25,700.

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