VPB – Shining parent bank, dimming FE Credit – Earnings update

•  VPB’s net profit 2Q21 increased 36.1% yoy to VND4,016bn mainly thanks to parent bank’s performance while FE Credit net profit plunged 80% yoy.
• 1H21 NP growth of 37% yoy to VND7,218bn thanks to decrease in funding cost (CoF), fulfilling 55.6% of our full year forecasts.
• The FE Credit divestment gain prompted us a TP upgrade to VND75,000.

Strong 2Q21 earnings growth thanks to investment gain
2Q21 consolidated net profit grew 36.1% yoy to VND4,016bn. Parent bank’s NP jumped by 335% yoy to VND7,370bn on the back of 13% yoy credit growth and 1,350% yoy growth of investment gain (~VND1,390bn). During 2Q21, the bank offloaded 18% of its investment (~VND12,000bn). Meanwhile, FE Credit’s NP plunged 80% yoy to VND247bn due to 12.28% decrease in loan balance, a softer NIM and a higher credit cost yoy.
1H21 recap: resilience despite gloomy FE Credit
VPB posted VND18,352bn (16.7% yoy) in 1H21 net interest income (NII) on the back of a 15.1% yoy increase in loan book and 57bps yoy to 9% in net interest margin (NIM). Ytd credit grew 7.5%, lower than that of 1H20. VPB has got a credit threshold extension from the State Bank of Vietnam (SBV) to 12.1% for FY21F, still lower our forecast of 18%. 1H21 CoF fell 167bps yoy to 4.6% as deposit rates were cut down 30-100bps yoy across all maturity spectrum while CASA ratio climbed to 18% at end-1H21 from 12% at end-1H20. The bank aggressively booked provision in 2Q21 (+54% yoy), bringing 1H21 provision expenses to increase 34.5% yoy. 1H21 parent bank’s NP grew 197% to VND9,945bn; bringing consolidated NP to VND7,218bn (+37% yoy).
FE Credit ‘s 1H21 NP plunged 54% yoy.
FE Credit’s 1H20 NIM compressed 96bps yoy to 25.7%, as the bank squeezed its high-risk lending strategy in the prevailing headwinds. Loan book fell 4.9% qoq and 12.7% vs. end-FY20, while 1H21credit cost climbed to 17%.
Asset quality show signs of deterioration
Though the bank aggressively wrote off bad debt in 1H21 (5.5%; 77bps yoy); consolidated NPL ratio inched up to 3.5% at end-2Q21 and end-1Q21 from 3.4% end-FY20. FE Credit’ NPL spiked 9.1% at end-1H21 from 7.7% at-end 1Q21 and 6.2% at end-FY20. Consolidated loan-loss reserve ratio fell to 44.7% at end-1H21 from 48.8% at end-FY20.
Upgrade from Hold to Add with a higher TP of VND75,000
Our new 1-year target price is based on a target P/BV of 2.1x for FY21F book value to reflect the gain from FE Credit divestment deal. An upside catalyst is the possibility of a private placement for strategic investors.

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