LPB – Starting 2021F with a sprint – Update

• The bank planned for a 32% increase in FY21F pretax profit and increasing charter capital by 46% to approx. VND157trn.
• 1Q21 net profit surged 81% yoy to VND877bn thanks to lower funding cost and opex, forming 42% of our previous full-year forecast.
• Reiterate Hold rating with a higher TP of VND26,000 on higher earnings forecasts and higher target P/B for FY21F BV.

AGM 2021 key notes: promising catalysts ahead
LPB plans for a 32% yoy growth in FY21F pretax profit to VND3,200 (equivalent to 92% of our full-year forecast) and 20% credit growth. Besides, the bank also planned to issue additional 67m shares via private placement for foreign investors, lifting LPB’s foreign ownership limit to 10%. Regarding bancassurance activities, the BOD mentioned that the exclusive contract between LPB – Daiichi will expire at Feb 2022. Thus, the bank is actively seeking for alternative partner and expects to sign a new exclusive bancassurance contract in FY22F.
1Q21 earnings recap: robust growths amid subdued operation cost
1Q21 net interest income (NII) grew 43% to VND2,051bn yoy on the back of strong loan growth (+26.5% yoy) and an improvement in net interest margin (NIM) by 55bps yoy. Particularly, 1Q21 funding cost slumped by 100bps as the bank utilised low-cost funding cost (interbank depsits) while assets yield eased by 37bps because the bank aggressively reduce lending rates to support loan growth. Besides, non-interest income (non-II) surged by 4.2x yoy to VND300bn with net fee payments and foreign currency trading are main contributors, advancing 68% and 16.5x yoy respectively thanks to actively promotion of new digital banking products and favourable market conditions. On the expense side, the bank also dramatically reduced its cost-to-income ratio from 62% in 1Q20 to 44% in 1Q21 by effectively improving TOI/employee by 44% yoy from VND161.0m in 1Q20 to VND232.5m in 1Q21. As a result, LPB’s net profit jumped significantly by 81% yoy to VND877bn.
Reiterate Hold rating with a higher TP of VND26,000
We revise up our FY21-22F EPS by 27.0%/20.5% on lower funding cost and lower operating expenses. We forecast the bank’s FY21F cost of fund would bounce back to the pre-pandemic level of 5.9% and its CIR would be improved to 55% from 61% in our previous forecasts for FY21F. Our TP is based on residual income valuation (COE: 14.6%; LTG: 3.0%). We also lift our FY21F target P/B from 1.0x to 1.6x (small and mid-cap banks’ average) to reflect a sharp re-rating in the banking sector. Upside risks to our TP are the success of the private placement for foreign investors and an upfront payment fee for exclusive bancassurance contract with higher-than-expected valuation. Downside risk is higher-than-expected credit cost.

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