VPB – Price rally on FE Credit deal expectation – Update

• 1Q21 net profit grew significantly by 38% yoy to VND3,202bn mainly driven by a further sharp cut in operating expenses by 20% yoy.
• For FE Credit divestment deal, the bank expects to announce final conclusion this quarter.
• Downgrade to Hold with a higher TP of VND56,300 on higher target P/B for FY21F book value to reflect a re-rating in the banking sector.

1Q21 AM key takeaways

According to the Analyst Meeting on 23 Apr, VPB guides for a 28% yoy increase in FY21F pre-tax profit to VND16,700bn (equivalent to 102.6% of our full-year forecast).The parent bank’s FY21F targets include: 1) 16.6% yoy credit growth; 2) maximum non-performing loan ratio of 3%; and 4) lifting NIM to be higher than the pre-pandemic level of 4.9%. At end-1Q21, the bank had restructured VND7.5trn credit amount (~2.2% total consolidated gross loan), of which 5.8trn is from the bank and 1.7trn from FE Credit. For FE Credit divestment deal, the BOD expects to complete this quarter.

1Q21 NII grew 13.7% yoy on parent bank’s credit spike and lower COF

VPB posted NII of VND9,120bn in 1Q21, on the back of 14% yoy consolidated loan growth and a 17bps yoy hike in blended NIM. The strong growth was completely spurred by parent bank’s performance, with 17% increase in separated loan growth and 1.7% yoy drop in funding cost. Meanwhile, FE Credit recorded 4% yoy decline in NII to VND4,446bn due to a slide of 1.5% in the company’s NIM. For FY21F, we forecast the parent bank and FE Credit would achieve a loan growth of 17%/15% yoy respectively, in line with the bank’s target.

Stellar 1Q21 net profit growth on positive operating jaws

We were impressed by the bank’s well-managed operating expenses. VPB’s cost-to-income ratio (CIR) fell sharply from 32% in 1Q20 to 22% in 1Q21, remaining the lowest in the sector. However, we expect VPB’s CIR to pick up to 32% for FY21F, as the bank has recently increased its employee number by 10% ytd and the BOD projects to invest more in business activities in the upcoming quarters. Consequently, 1Q21 VPB’s net profit increased by 38% yoy, to VND3,202bn, forming 25% of our full-year forecast.

Downgrade to Hold rating with a higher TP of VND56,300

Bank’s share prices have rallied 57% ytd following stellar FY20 performance and the possibility of FE Credit divestment deal. Our new TP is based on equal weight of residual income valuation and a higher target 2.0x FY21F P/B from 1.7x to reflect a sharp re-rating in the banking sector. We also ran a sensitivity analysis on VPB’s FY21 BV on changes of FE Credit’s ownership and the company’s target P/BV to reflect an upside risk of FE Credit deal.

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