VIB – This is a good re-entry level – Update

• 2Q21 net profit grew 67.6% yoy to VND1,718bn on solid topline growths and lower CIR.
• We raise EPS by 9-13% for FY21-23F on higher NIM rise and lower CIR.
• Upgrade from Hold to Add with a higher TP of VND48,100.

2Q21 robust earnings growth on topline hikes
2Q21 Net interest income (NII) surged 55.6% yoy on a 32.7% yoy loan book growth and 61bp yoy NIM expansion, while non-interest income (Non-II) grew 29.9% yoy on a 25.2% yoy net fee income (NFI) increase. CIR fell to 35.4% from 39.5% in 2Q20, while provision expense rose only 18.3% yoy. All in, 2Q21 net profit grew 67.6% yoy, trailing that of 68.1% yoy of 1Q21.

1H21 recap: strong credit growth, historical high NIM
Loan book grew 7.9% ytd at end-1H21, higher than that of 6.7% seen in 1H20, mainly driven by a 14.5% ytd growth of individual lending. Annualised NIM hit a historical high of 4.54% in 1H21 as a 137bp yoy drop in cost of fund offset a 64bp yoy decline in asset yield. CIR fell to 37% in 1H21 from 42.3% in 1H20, while provision expense rose 53.8% yoy. Consequently, 1H21 net profit grew 67.8% yoy to VND3,164bn, fulfilling 53.4% our full-year forecast.

Asset quality slightly improved but still softer than peers
Non-performing loan ratio fell to 1.69% at end-2Q21 from 1.73% at end-1Q21/4Q20, due to increase in writing-off bad debt. Annualised write-off rate rose to 0.48% in 1H21, compared to the level of 0.12% in 1H20. Restructured loan reduced to VND2,486bn at end-2Q21 (~1.4% loan book) from VND3,201 at end-FY20. So far, VIB has booked 35% of VND81bn for restructured loan provision, complying with Cir.03. Loan loss reserve edged up to 63.8% at end-2Q21, from 58.2% at end-FY20, but still lower than average LLR 169% of top 10 largest listed banks.

Upgrade from Hold to Add with a higher TP of VND48,100
We raise our 2021-23F EPS by 9-13% on following lower CIR and higher NIM. The bank is expected to deliver an average 28% ROE over FY21-23F, the highest return on capital profile under our banking coverage. Altogether, we raise targeted P/B multiple to 2.5x from previous 2.0x and rolled over to average FY21-22F book value. Our new TP is based on residual income valuation (COE: 14%, LTG: 3%), and 2.5x P/B approach, weighted equally. As the bank’s share price has subdued about 21% from its peak, following recent market correction, potential upside to our new TP has opened to 15%. Thus, we believe this is a good time to accumulate a profitable bank like VIB. Upside catalysts are better-than-expected loan and NIM expansion. Downside risk would be higher-than-expected bad debt.

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