TPB – On right track but valuations stretched – Update

• FY21 net profit surged 37.6% yoy to VND4.8tr, 4.6% above our forecast.
• We expect earnings to grow 25% CAGR over FY22-23F.
• We maintain TP of VND41,100 but downgrade to Hold as stock valuations stretched.

FY21 results: full of beans
TPB posted VND4.8tr in FY21 net profit (+37.6% yoy), driven by 30.5% yoy growth of net interest income and better cost control to offset the provision charge surge. Credit expanded 21.8% yoy, driven by 18% yoy loan growth and 65% yoy growth of corporate bonds (~12% in credit mix). Non-interest income grew 30% yoy thanks to bancassurance sales (+66.0% yoy) and payment fees (+50.5% yoy). Cost-to-income ratio (CIR) dropped to 34% from that of 41% in FY20.

Asset quality has been improved. TPB’s bad debt fell 18.6% yoy, bringing down the NPL ratio to 0.8% at end-FY21 (vs. 1% at end-3Q21 and 1.2% at end-FY20). Specific-mentioned loan also decreased to make up 1.5% in total loan balance (vs. 2.6% at end-3Q21). Loan-loss coverage ratio (LLR) was 152.6% at end-FY21 (vs. 134.2% at end-FY20). Otherwise, TPB aggressively wrote off bad debts in FY21 (VND2.9tr, particularly in 3Q21).

Still on the right track of solid earnings growth…
TPB still maintain its core strategy to be a retail-oriented bank and it is well-positioned to ride on the retail banking trend in Vietnam, thanks to being the first mover in digital banking era with an undeniable competitive edge (a strong lending capacity on mass access and simple loan process), which helps broaden its young customer bases and increase deposit mobilization ability. With a robust CAR of 14%, TPB will deliver a higher-than-peer credit growth of 22%/20% in FY22-23. Rising deposit rates caused by inflation and competition for funds in 2022 will threaten the sector’s NIM in overall. However, TPB can partially mitigate this risk thanks to its potential to improve CASA, a reasonable retail lending mix (47.7% credit balances) and a low LDR of only 58% (regulatory threshold of 85%). We see FY22-23F provision will fall 19%/11% yoy (credit-cost rate will decline to c.1.5% from 2.2%), underpinned by its already superior asset quality. All in all, we expect TPB will continue to provide a NP growth of 25%/24.5% yoy in FY22-23F.

…but positives likely priced in; downgrade to Hold
TPB is trading at 2x FY22F P/BV (peers’ average of 1.9x) – equivalent to its 2SD above average, which we believe TPB’s growth potential has already been reflected. Downgrade to Hold with unchanged 1-year TP of VND41,100. Our TP is based on the combination of 2x FY22F P/BV and residual income valuation approach (COE: 14%, LTG: 3%). Upside catalysts will be a better-than-expect NIM. Downside risks include (i) higher-than-expected inflation which lower credit growth and (ii) higher-than-expected bad debt.

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