MBB – Attractive valuation – Update

• 3Q21 net profit grew robustly thanks to NIM expansion and lower operating expenses. 9M21 earnings fulfilled 83% of our FY21 forecast
• Revise up FY21-23F EPS forecasts to factor the higher-than-expected credit growth.
• Reiterate Add with a higher 1-year TP of VND34,500, following a FY21-23F earnings upgrade and a P/BV of 2x (roll over to FY22 book value).

Net profit grew healthily in 3Q21
MBB’s 3Q21 total operating income (TOI) climbed 29.2% YoY to VND8.700bn, driven by 26.1% yoy increase in net interest income (NII) and 39.1% yoy growth in non-interest income (non-II). Loan book rose 12.8% ytd at end-3Q21, from 11% ytd at end-2Q21, modest expansion in 3Q21 due to the Delta variant outbreak. On the expense side, CIR fell sharply to 34.8% from 42.1% in 3Q20, while provisioning surged 101.2% yoy. All in all, 3Q21 net profit (NP) grew 28.2% yoy to VND3,022bn.
9M21 recap: strong in all aspects
9M21 NII grew 31.4% yoy on 25% yoy loan growth and 26bp yoy NIM expansion to 5.12% thanks to lower funding cost, which decreased by 83bp yoy to the all-time-low. 9M21 non-II surged 50.8% yoy, mostly attributed to bad debts recovery (+95% yoy). As MBB accelerated provisioning in 9M21 (+43.5% yoy) to weather the rising of bad debts, loan loss reserve (LLR) climbed up to 232.8% (236.5% at end-2Q21 and 134.1% at end-FY20). NPL ratio inched up to 0.95% at end-3Q21 from 0.76% at end-2Q21, but still below 1.09% at end-FY20.
We revise up FY21-23F EPS forecast based on stronger credit growth
We raise our FY21F earnings forecast to VND12,188bn, 7.5% higher than old forecast thanks to higher non-II and lower CIR. We increase our FY22/23F loan growth forecasts to 18%/17% vs. 15%/15% previously (FY21-23F CAGR of 17.5%), reflecting higher credit demand in the next 2 years. Despite the downward pressure on lending yield in a couple of next quarters, we expect NIM will stay flat at 5.1% over FY22-23F (vs. previously 5.2%/5.5%) thanks to its industry-second-highest CASA ratio and its ability of retail loan expansion. As a result, FY22-23F NP changes +6.0%/+0.6% versus previous forecasts. ROE will be sustainable at an average of 22.8% over FY22-23F.
Reiterate Add with a higher 1-year target price of VND34,500
MBB is trading at a discount compared to peers (1.6x FY22F P/BV vs. peers of 1.9x). We believe MBB deserves to trade at 2x P/BV as it has built up a comprehensive banking platform with strong cost advantage to ride on all of robust-growth segments i.e. consumer finance and life insurance, helping strengthen its margin and its upbeat earning growth outlook. Combining P/BV approach (roll over to FY22F book value) with residual income valuation (COE: 15.1%, LTG: 3%), we derive our 1-year TP of VND34,500 (+20.2% upside)

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