VNDIRECT RESEARCH www vndirect com vn 1 Banks Inflection point in sight Banks still recorded robust profitability in 1Q22 given strong credit growth, robust fee incomes and well controlled credit cost We believe the recent market sharp correction has brought banking sector back to buy territory with intact outlook over FY22 23F Top pick for the sector are VPB, HDB and TCB Banks still delivered robust profitability in 1Q22 Vietnam banks posted earnings growth of 29% yoy and ROE of c 23% in.
VNDIRECT RESEARCH Sector note 03 June 2022 Banks Inflection point in sight Banks still recorded robust profitability in 1Q22 given strong credit growth, robust fee incomes and well-controlled credit cost We believe the recent market sharp correction has brought banking sector back to buy territory with intact outlook over FY22-23F Top pick for the sector are VPB, HDB and TCB Banks still delivered robust profitability in 1Q22… Vietnam banks posted earnings growth of 29% yoy and ROE of c.23% in 1Q22 given steady credit expansion, robust fee incomes and well-controlled credit cost System credit grew 6% ytd at end-1Q22, much higher than that of 3.45% ytd at end-1Q21 thanks to huge loans demand to resume business activities after the pandemic Banks’ asset quality has been relatively affected as a consequence of the pandemic, in which 1Q22 average non-performing loan (NPL) ratio rose while loan loss reserve (LLR) slightly reduced compared with the levels at end-4Q21; however they are still manageable and still intact over FY22-23F We expect the economy to gather pace in 2022-23 driven by robust export growth, demand recovery and fiscal policy support and banks would be the best proxy to Vietnam economic resurgence Although NIMs are difficult to expand due to higher deposits rate, banks will maintain strong earnings growth of c.25% and robust profitability of c.22% this year given solid credit growth, fast-growing fee incomes and well-managed credit cost Valuation has been depressed; inflection point is near Recent market correction has brought banking sector valuation down to 1.53x FY22F P/BV which is much lower than its 3-year average of 2x Banking sector has faced headwinds due to the market concern of inflation, NIM compression and bad debt rising after the end of Circular 14 Furthermore, the sentiment for banks has been even worse as investors have over-reacted to the scrutiny on Vietnam capital market regardless those regulators aim to improve market integrity and sustainability in the long run We believe these concerns are not as bad as fear as Vietnam banks will be able to weather any asset quality risks thanks to already strong provisioning buffer and well-controlled exposure to high-risk property segments; and this ‘panic-selling’ period has provided a very attractive valuation for the whole sector In specific, we prefer VPB, HDB and TCB as they have unique stories besides of their solid fundamentals Figure 1: Most of banks are trading below their 3Y P/BV average levels 4.0 3.61 3.5 3.0 2.5 2.36 2.54 2.0 Analyst(s): 1.74 1.56 1.5 1.35 1.13 1.0 Thao Tran thao.tranthu2@vndirect.com.vn Viet Le viet.lequoc2@vndirect.com.vn 1.74 1.40 1.27 1.50 1.79 2.25 1.70 1.85 1.64 1.60 1.58 1.41 1.39 1.21 1.27 1.13 1.05 1.05 LPB STB* 1.02 0.5 0.0 VCB TCB VPB CTG 3Y avg P/BV (x) MBB ACB VIB TPB Peers' avg P/BV of 1.47x HDB BID* MSB* FY22F P/BV (x) Source: VNDIRECT Research www.vndirect.com.vn VNDIRECT RESEARCH INFLECTION POINT IN SIGHT Credit growth outlook remains intact Credit growth accelerated in 1Q22 System credit was at 7.66% ytd as of 20 May 2022, nearly double compared with that of the same period last year, indicating strong credit demand for the business activities resumption post pandemic Recap in 1Q22, system credit rose 6% ytd and 16.9% yoy at end-1Q22 to VND11,149tr (1Q21: 2.95% ytd), driven by strong credit growth of industry and trade Three state owned listed commercial banks (SOCBs) i.e BID, VCB, CTG, which accounted for 33.5% country lending market share delivered 6.7% ytd of credit growth, higher than system level Total loan book of 15 listed banks, which made up 62% system credit, rose 6.7% ytd at end-1Q22 Figure 2: System credit grew rapidly since the beginning of 2022 16,000 22% 14,000 17% 12,000 12% 10,000 8,000 7% 6,000 2% 4,000 -3% 2,000 -8% System credit (VNDtr, LHS) M2 - System deposit (VNDtr, LHS) Credit growth (% yoy) Deposit growth (% yoy) Source: VNDIRECT Research Figure 3: Banks posted a better 1Q22 loan growths than that of 1Q21 16% Figure 4: …and also deposits growth Title: Source: 12% 14.3% 14% 10% 12% 8% 10.8% 9.3% 8.9% 8.2% 7.4% 7.3% 6.0% 10% 6% 8.9% 8.7% 8% 7.1% 6.9% Please fill in the values above to have them entered in your 4.2% 6.5% 6.3% 6% 4% 6.1% 5.4% 5.3% 5.0% 4.7% 1.5% 1.3% 2% 3.6% 4% 3.1% 2.9% 2.7% 2% 0% -0.9% -2% 0% -2.9% -4% -0.6% -2% MBB HDB MSB CTG VCB EIB STB VIB TPB VPB TCB ACB BID OCB LPB Loan growth (ytd 1Q21) Loan growth (ytd 1Q22) Source: Commercial banks, VNDIRECT Research www.vndirect.com.vn -6% -5.2% TCB VIB CTG STB MBB VPB EIB BID OCB TPB HDB VCB ACB LPB MSB Deposits growth (ytd 1Q21) Deposits growth (ytd 1Q22) Source: Commercial banks, VNDIRECT Research VNDIRECT RESEARCH On the deposit side, M2 improved to 3.45% ytd, 12.3% yoy at end-1Q22, lower than the growth rate 6% ytd of system credit Deposits of individuals growth slowed down to only 3.3% ytd We believe that individuals have been still searching for higher yield investment instruments (corporate bonds, stock market, property market) amid low deposit interest rates Aggregate deposits of customers of SOCBs which made up 30% of M2 increased 4.2% ytd, higher than system level Total deposits of 15 listed banks which accounted for 56% of M2 rose 4.2% ytd at end-1Q22 (much higher than that of 1.6% ytd at end-1Q21) We observe that the gap of credit-deposit growth is widening which will weigh on banks that are carrying low liquidity We expect credit growth of 14% in 2022F from the level of 12% in 2021 We expect system credit growth to keep accelerating and reach at least to the level of 14% in FY22F, driven by (i) strong rebound in manufacturing and trading activities; (ii) low lending rates to trigger borrowing demand for house buyers; and (iii) higher public investment disbursement rate As Vietnam has been normalized since Oct-21 synergizing with the current Government supporting packages and low lending rates would boost businesses to resume and take new loans for their operations, accelerating credit growth, in our view Figure 5: We forecast system credit to grow 14% in FY22F 20% Figure 6: Forecasted 2022F loan growth of banks under coverage 160% 18.2% 18% 140% 17.3% 14.2% 14.0% 12.6% 12% 10% 25.0% 25% 16% 14% Title: Source: 30% 22.0% 22.0% 22.0% 21.5% 120% 15.0% 14.0% 13.9% 13.6% 13.0% 12.1% 10.4% 20.0% 100% 20% Please fill in the values17.0% above to have them entered in your 80% 15.0% 14.5% 15% 8% 60% 11.0% 6% 40% 10% 4% 20% 2% 5% 0% 0% 0% VIB System Credit/ GDP (RHS) TCB TPB HDB VPB MBB ACB LPB VCB CTG System Credit Growth (LHS) 2021 Source: SBV, VNDIRECT Research 2022F Source: Commercial banks, VNDIRECT Research A decent starting for banking sector 1Q22 aggregate net interest income (NII) of 15 listed banks rose 18% yoy on a 18.9% yoy loan book growth and a flat yoy average net interest margin (NIM) of 4.17% Notably, total non-interest income (Non-II) surged 50.3% yoy thanks to the bancassurance one-off gain of VPB On the cost side, average CIR reduced to 33.8% in 1Q22 from 36% in 1Q21, while provision expense only rose 14.7% yoy All in all, aggregate net profit increased 29% yoy in 1Q22 (1Q21 of 76% yoy) www.vndirect.com.vn VNDIRECT RESEARCH Figure 7: Earnings growth in 1Q22 and 1Q21 by each banks 350% 300% 250% 200% 179% 150% 100% 62% 59% 34% 50% 32% 29% 26% 28% 26% 20% 15% 14% 0% -27% -50% -34% -100% VPB LPB STB BID ACB MBB MSB 1Q21 VIB TCB HDB VCB TPB CTG OCB 1Q22 Source: Commercial banks, VNDIRECT Research Figure 8: Total operating income structure of local listed banks Figure 9: Banks have reduced CIR in 1Q22 70% 100% 90% Title: Source: 60% 80% 50% 70% Please fill in the values above to have them entered in your 60% 40% 50% 30% 40% 30% 20% 20% 10% 10% 0% 0% STB VPB CTG MBB VCB EIB TPB HDB BID ACB TCB MSB OCB VIB NII/TOI VPB BID VCB CTG TCB MSB MBB TPB VIB LPB OCB HDB ACB EIB STB 1Q21 Non-II/TOI Source: Commercial banks, VNDIRECT Research 1Q22 Source: Commercial banks, VNDIRECT Research NIM will be compressed stronger in 2H22F 1Q22 NIM: a mix result Banks continued to report asset yield contractions to support Covid-19 afflicted clients due to interest payment reductions/exemptions and lending interest rates reductions SOCBs recorded an average yield decline of 35bp yoy in 1Q22, while that of listed private banks posted an average yield decline of 46bp yoy in 1Q22 On the other hand, average listed SOCBs’ cost of fund (COF) fell by 22bp yoy to 2.97% in 1Q22 while average listed private banks recorded a 50bp decrease in COF to 3.4% The SBV’s loosening monetary policy helped save banks’ funding cost www.vndirect.com.vn VNDIRECT RESEARCH NIM of listed SOCBs slightly downed 14bp to 2.96% in 1Q22 Average NIM of listed private banks recorded a 1bp yoy increase to 4.48%, but the NIM of each listed private bank varied between compression and expansion We observed that banks with the advantages of lower funding cost via CASA improvement and/or low LDR, continued to maintain or expand their NIMs — MSB +34bp, MBB +27bp, HDB +19bp, TCB +6bp Figure 10: NIM performance in 1Q22 Figure 11: NIM performance across banks under coverage +/- % IAE COF NIM VCB (15) 24 TCB - (9) (143) 10% 9% 8% VPB (228) (82) BID (35) (36) - 7% CTG (80) (14) (66) 6% MBB (25) (61) 27 ACB (66) (59) (7) VIB (30) (40) TPB (110) (56) (53) 3% OCB (17) (35) 13 2% HDB (14) (40) 19 1% LPB (17) (75) 61 STB (80) (17) (48) MSB (44) 34 EIB 24 (77) 94 5% 4% 0% 1Q20 Source: Commercial banks, VNDIRECT Research Figure 12: CASA mix by each bank… 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 TCB VPB CTG MBB ACB VIB TPB HDB LPB 1Q22 Source: Commercial banks, VNDIRECT Research Figure 13: … and LDR at end 1Q22 90% 60% 80% 50.4% 85.2% Title: Source: 83.6% 83.5% 82.9% 82.8% 82.7% 80.4% 77.3% 75.0% 50% 71.0% 43.8% 40% 4Q21 VCB 66.9% 66.2% 70% 38.1% 60% Please fill in the values above to have them55.7% entered in your 33.7% 50% 30% 26.7% 22.8% 40% 21.5% 19.9%19.9% 18.8% 30% 20% 14.9% 12.6% 20% 7.6% 10% 10% 0% 0% TCB MBB MSB VCB ACB STB VPB End-FY21 BID CTG TPB VIB HDB LPB BID CTG STB VPB ACB VCB LPB MBB TCB End-FY21 End-1Q22 Source: Commercial banks, VNDIRECT Research VIB MSB HDB TPB End-1Q22 Source: Commercial banks, VNDIRECT Research Lending rates to decrease further but deposit rates pick up tenderly At end-1Q22, the 3-month and 12-month term deposit rates remained unchanged compared to the level at the end of 2020 and 2021; however, they seem to start to pick up since May-22 Meanwhile, the interbank interest rates have also rebound from historic lows in late-2021, but are still very low relative to pre-pandemic levels www.vndirect.com.vn VNDIRECT RESEARCH Figure 14: Interbank interest rates rebound from historic lows 4.0% Figure 15: Deposit rate still stayed at low level; however, it started to pick up since May-22 Title: Source: 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Overnight 1-week 1-month Source: Bloomberg, VNDIRECT Research 3M deposit rate (SOCBs) 12M deposit of (SOCBs) 3M deposit rate (private banks) 12M deposit (private banks) Source: Commercial banks, VNDIRECT Research Regarding to lending interest rates, to recall, the SBV has implemented an interest rate compensation package with a scale of VND3,000bn last year It offers lending interest rates of 3-4%/year for businesses strongly affected by the Covid-19 pandemic More importantly, the government has another plan this year of interest rate compensation for businesses to VND40,000bn with 2% of lending interest rates until the end of 2023 This is the first policy on interest rate support using the State budget, and to be implemented on a large scale through the commercial banks, with the goal of supporting the enterprises, cooperatives and business households to access bank loans with lower cost, thereby overcome their difficulties, stabilize and expand business activities Thanks to these supportive policies, we expect lending rates to decrease by 10-30bp in 2022F, on average In terms of deposit interest rates, the deposit rate is unlikely to remain at historic low due to the following reasons (1) higher demand for fund raising as credit accelerates, (2) higher inflation, (3) compete more fiercely with other investment channels to attract capital inflow As a result, we expect that deposit rates to slightly increase 30-50bp in 2022F We see the 12-month deposit rates of commercial bank could climb to 5.9-6.1%/year at end-FY22, which are still lower compared to pre-pandemic level of 6.8%/year In case Circular 08/2021/TT-NHNN is not extended for one more year as proposed at the present time, the bank shall maintain a maximum ratio of shortterm capital for provision of medium-term and long-term loans from 34% to 30% in Oct-22 Banks reduce the ratio by lowering short-term capital or increasing medium-and-long-term loans Meantime, the NIM improvement trend will likely be rather uneven across individual banks, as their sensitivity to competition for deposits and need for funding mobilization vary widely Banks with the following advantages have more opportunities to improve their NIM: www.vndirect.com.vn High CASA ratio or lower loan-to-deposit ratio: can lead to lower funding costs, while facilitating lending rate reduction Ability to borrow in foreign currency: can lead to lower funding costs in the stable exchange rate Have opportunities to increase their exposures to individual lending which will enjoy better asset yield VNDIRECT RESEARCH Non-interest income: a juicy performance Banks’ 1Q22 non-II rose 27.9% yoy, lower than that of 1Q21 (+44.3% yoy); net fee income (NFI) and other income were the two main factors, contributing 82% of total non-II, growing 11% yoy and 102% yoy, respectively Specifically, VPB was the bank that has the highest growth rate of 333.9% yoy thanks to the upfront fee from exclusive banca partnership with AIA Figure 16: VPB recorded the highest growth thanks to huge amount of upfront fee in 1Q22 (% yoy) Figure 17: NFI and other income were two main factors contributing 82.3% of total non-II Title: Source: 8,700 120% 110% 7,700 410% 100% 6,700 90% 5,700 310% 80% 4,700 70% 3,700 210% 110% 50% 1,700 40% 700 30% -300 10% 60% 2,700 VPB VCB CTG BID TCB STB MBB ACB HDB VIB TPB LPB EIB OCBMSB 20% Other income (VND bn - LHS) -90% NFI (VND bn - LHS) VPB STB CTG TPB EIB ACB HDB LPB MBB BID VIB VCB TCB MSB OCB Proportion of NFI and Other income in Non-II (% RHS) 1Q21 1Q22 Average proportion (% - RHS) Source: Commercial banks, VNDIRECT Research Source: Commercial banks, VNDIRECT Research In 1Q22, net fee incomes of SOCBs decreased 14.5% yoy, although 1Q21 had posted an impressive growth of 88.1% yoy as the banks tried to reduce fees to attractive more customers, thus helping lift CASA Other incomes grew 103% yoy, higher than 76.3% yoy in 1Q21 mainly driven by huge upfront fee from VPB and strong bad-debt recovery (ACB, CTG, EIB…) Figure 18: NFI posted 11.8% yoy growth in 1Q22, lower than 62.6% in 1Q21 (% yoy) mainly due to the sluggish performance of SOCBs Figure 19: Other income increased 103% yoy in 1Q22, higher than 76.3% in 1Q21 (Other *: MSB, LPB, STB, TPB) 802.0% 210% Title: Source: 800% 173.6% 700% 160% 654.0% 600% Please fill in the values above to have them entered in your rep 83.4% 110% 500% 35.3% 94.1% 362.6% 400% 81.1% 34.3% 60% 18.2% 26.5% 4.8% 62.6% 6.4% -32.0% 233.0% 203.0% 200% 11.8% 100% 91.0% 3.0% 103.0% -27.0% 1.1% 10% -40% 300% -52.0% -56.0% 76.3% 0% -0.4% -11.1% -21.1% -25.1% -19.0% -100% MSBHDB STB TPB TCB LPB VPB ACB VIB MBBOCB CTG BID VCB EIB Total 1Q21 1Q22 Source: Commercial banks, VNDIRECT Research www.vndirect.com.vn 1Q21 1Q22 Source: Commercial banks, VNDIRECT Research VNDIRECT RESEARCH Asset quality: shaken but definitely not broken Banks’ asset quality has been relatively affected as a consequence of the pandemic, in which 1Q22 average NPL ratio rose while LLR slightly reduced compared with the levels at end-4Q21 Average NPL ratio increased to 1.5% at end-1Q22 from the levels of 1.39% at end-2021 Group bad debt ratio rose to 0.58% at end-1Q22 from 0.51% at end-4Q21 Total loan book of 15 listed banks grew 6.7% ytd while their total nonperforming loans rose 11.4% ytd Top lowest NPL ratio banks include TCB (0.67%), VCB (0.81%), ACB (0.82%) and MBB (0.99%) Average annualized credit cost of 15 listed banks down to 1.48% in 1Q22 from the level of 1.84% in 2021 and 1.51% in 1Q21 However, their average provision expense/pre-provision operating profit slightly fell to 28.9% in 1Q22 from 31.4% in 1Q21, thanks to banks’ stronger topline growth and lower CIR Top banks that posted heavy provisioning include BID (62.1%), CTG (43.2%), TPB (31.8%) Meanwhile, average loan loss reserve (LLR) dropped to 147.2% at end-1Q22 from 151.4% at end-2021, but still higher than that of 108.6% at end-2020 Top highest LLR banks were VCB (372.6%), BID (259.2%), MBB (250.1%), ACB (197.7%) and CTG (197.3%) Figure 22: Watch out the rising of loans-at-risk Figure 23: LLR slightly fell at end-1Q22 across the banks 4.0% 450% 3.5% 400% 350% 3.0% 2.5% 1.6% 300% 1.5% 1.5% 1.4% 1.5% 1.5% 250% 1.4% 1.3% 2.0% 1.1% 1.0% 1.0% 1.2% 1.3% 1.5% 1.0% Title: Source: 200% 150% 1.7% 1.7% 1.7% 1.4% 1.8% 1.6% 1.7% 100% 1.3% 1.4% 1.3% 0.5% 1.5% 1.3% 1.3% 50% 0% 0.0% VCB BID MBB CTG ACB TCB STB TPB LPB MSB HDB VPB EIB OCB VIB 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 Aggregate NPL ratio 3Q21 Aggregate Group ratio Source: Commercial banks, VNDIRECT Research Figure 24: Banks’ credit cost in 1Q22 1Q22 Source: Commercial banks, VNDIRECT Research Figure 25: …and provision expense/Pre-provision operating profit 1.6% 80% 1.4% 70% 1.2% 60% 1.0% 50% 0.8% 40% 0.6% 30% 0.4% 20% 0.2% 10% 0.0% 4Q21 Title: Source: 0% VPB MBB BID TPB OCB CTG HDB VCB VIB STB MSB LPB EIB TCB 1Q21 1Q22 Source: Commercial banks, VNDIRECT Research www.vndirect.com.vn BID CTG OCB TPB STB VPB MBB HDB VCB EIB 1Q21 VIB LPB TCB ACB 1Q22 Source: Commercial banks, VNDIRECT Research VNDIRECT RESEARCH The predictable surge in bad debts in the upcoming months is also noticeable when the Cir.14 is no longer effective at the end of Jun-22 According to the SBV, NPL ratio could climbed up to 7.3% if including all restructured loans and bad debts selling to VAMC, equivalent to 2016-17 NPL ratio levels However, Vietnam banks’ asset quality has been strongly improved compared to 2016-17 period They have ramped up their provisions to weather the possible bad debt rising and LLR has reached to the all-time-high levels in most of Vietnam banks at end-FY21 Otherwise, most of Vietnam banks also reported that all restructured loans have been fully provisioned Thanks to solid asset quality and strong provisioning buffer, Vietnam banks will be able to mitigate the bad debt spike risk, in our view Furthermore, banks are attempting to strengthen their capital adequacy ratio (CAR), reflecting in the CAR improvement at end-FY21 and 1Q22 as well Raising capital is always a top priority for banks in 2022, especially for SOCBs, in order to strengthen their CARs in the direction of Base III application Figure 26: Banks' CAR have been improved Figure 27: Banks’ capital rising plan in 2022 18% 16% 15.3% 15.1% 14.2% 13.0% 14% 12.1% 12% 11.3% 11.2% 10.7% 9.7% 10% 9.0% 9.0% 8% 6% 4% 2% 0% VPB TCB HDB TPB OCB VIB ACB End-FY20 End-FY21 Threshold (min of 8%) Sector Avg (11.8%) MBB VCB BID CTG End-1Q22 VPB BID VCB CTG MBB SHB TCB ACB HDB LPB TPB VIB MSB OCB Current charter capital (VND bn) 45,057 50,585 47,325 48,058 37,783 26,674 35,109 27,020 20,073 15,036 15,818 15,531 15,275 13,699 Source: Commercial banks Charter capital Title: Plan in 2022 Stock New issue after increase Source: divident (%) ESOP (%) (%) (VND bn) 50% 15% 79,334 12% 9% 61,208 18% 55,891 Please fill in the values above to have them entered in your 11.85% 53,751 20% 17% 46,882 15% 1.69% 40% 36,008 0.02% 35,172 25% 33,775 25% 0.99% 25,503 15% 22% 21,250 33% 0.33% 21,142 35% 0.7% 21,077 30% 0.94% 20,000 30% 17,885 Source: Commercial banks Inflection point in sight We expect economy to gather pace in 2022 driven by robust export growth, demand recovery and fiscal policy support; and banking sector would be the best proxy to Vietnam economic resurgence Although NIMs are difficult to expand further due to higher deposits rate, banks will still be able to maintain solid earnings growth of c.25% and robust profitability of c.22% this year, given strong credit growth, fast-growing fee incomes, lower CIR and well-controlled credit cost Meanwhile, Vietnam banking sector is trading at 1.53x FY22F P/BV on average – lower than its 3Y-average range of 2x despite its sustainable robust profitability, which is implying an undemanding valuation, in our view Banking sector has faced headwinds due to the market concern of bad debt rising when the Circular 14 becomes invalid by the end of Jun-2022 Furthermore, the sentiment for this sector has been even worse as investors have over-reacted to the recent scrutiny on Vietnam capital market regardless those regulators aim to improve the market’s integrity and sustainability in the long run However, we believe these concerns are not as bad as fear as Vietnam banks will have capabilities to weather any asset quality risks thanks to their already strong provisioning buffer and well-controlled exposure to high-risk property segments; and this ‘panic-selling’ period has opened an attractive valuation for banks www.vndirect.com.vn VNDIRECT RESEARCH Figure 28: Banking sector’s P/BV is falling below 3Y average range; and P/BV forward is trading at 1.53x - equivalent to minus 1SD level 3.0 Figure 29: Most of the banks are trading below the 3Y-average range (*) stands for Bloomberg consensus 3.61 Title: Source: 2.54 Please fill in2.36 the values above to have them entered in your 4.0 2.5 3.5 2.0 3.0 1.5 2.5 1.0 2.0 2.25 1.74 1.56 1.5 0.5 1.35 1.0 05/02/2022 03/02/2022 01/02/2022 11/02/2021 09/02/2021 07/02/2021 05/02/2021 03/02/2021 01/02/2021 11/02/2020 09/02/2020 07/02/2020 05/02/2020 03/02/2020 01/02/2020 11/02/2019 09/02/2019 07/02/2019 05/02/2019 03/02/2019 01/02/2019 0.0 1.74 1.40 1.27 1.13 1.50 3Y avg -2SD -1SD +1SD +2SD 1.70 1.64 1.85 1.60 1.58 1.41 1.39 1.27 1.21 1.05 1.13 1.05 1.02 0.5 0.0 VCB TCB VPB CTG MBB ACB P/BV (x) 1.79 3Y avg P/BV (x) VIB TPB HDB LPB STB* BID* MSB* Peers' avg P/BV of 1.47x Source: VNDIRECT Research FY22F P/BV (x) Source: VNDIRECT Research In specific, we prefer VPB, HDB and TCB as they have unique stories and undemanding valuation besides of their solid fundamentals Figure 20: Stock picks VPB Investment thesis/ key stories - We expected VPB will get a higher cedit growth quota from State Bank in FY22F (>23%, per our estimate), supported by the bank's highest CAR in 1Q22 (15.2%) Target price Current price (VND) (VND) Upside 44,900 30,250 48.4% - We estimate FE Credit will recover rapidly to the pre-pandemic levels of VND3 - 4tr in FY22F (6 times higher than FY21), per our estimate - Particularly, any successful issue of new shares to foreign investors will provide VPB a very-strong re-rating catalysts HDB - VPB is trading at FY22F P/BV of 1.6x, much lower than 5-year P/BV average of 1.85x and also peers’ average of 1.9x despite of its robust profitability (ROEs of 23%) Given its unique business model and further potential to grow, VPB deserves to be re-rated to trade in line with peers or even more (i.e 2x P/BV, in our view) - HDB has become one of the best capitalized banks in Vietnam with a 14.4% CAR (peers average of 9-12%); thus it should be given a high credit growth quota by the central bank of at least 22% this year, per our estimate Otherwise, the bank can also partly mititgate the NIM compression risk thanks to its very low LDR (only 66% at end-1Q22 vs regulatory threshold of 85%) 35,900 26,000 38.1% 66,400 36,400 88.4% - Especially, bancassurance will become the next growth leg of HDB given its potential market segment and already large customer base; and potential exclusive banca partnerships will significantly lift up the bank’s fee incomes in the near future - Attractive valuation: HDB is trading at FY22F P/BV of 1.4x, much lower than its 5-year P/BV average of 1.9x and also peers’ average of 1.5x, while its profitability has surpassed the 5-yearaverage range (ROEs of 23% and it will be sustainable, in our view) We believe HDB deserves to be traded at 1.9x - equivalent to its 5Y average level - to fully reflect its strengths TCB - The recent government’s regulatory tightening of capital market has asked a stricter supervision into property sector and corporate bond (c-bond) market We understand that this is to enhance the market integrity and improve Vietnam’s credibility However, it actually led to a negative sentiment of retail investors towards TCB - a bank with high exposure to property and c-bond trading - We believe TCB will face less risks relating to this regulatory tightening thanks to its solid banking model and well-positioned to ride the growth potentials of the capital market in the next few years This panic selling has depressed TCB’s valuation as it is trading at only 1.13x FY22F P/BV, implying an opportunity for long-term investors to accumulate more - FY22F outlook: With a robust CAR of 15.1%, TCB will receive a high credit growth quota by the central bank (at least 22% this year) Although VN banking sector will face NIM pressure in 2022, TCB is one of the few banks which can maintain its robust NIM levels thanks to the high CASA and retail lending exposure Combining with its benign asset quality, we believe TCB will be able to deliver a strong NP growth of 26% in 2022F and a robust ROE of c.22% Source: VNDIRECT Research www.vndirect.com.vn 10 VNDIRECT RESEARCH Figure 31: Vietnam bank comparison (price as of 02/06/2022) Bloomberg Recommen Code dation Vietcombank Vietnam Prosperity JSB Vietinbank Techcombank VCB VN VPB VN CTG VN TCB VN ADD ADD ADD ADD Price Latest LC 79,000 30,250 27,750 36,400 Military Commercial JSB Asia Commercial JS Bank Vietnam International Commercial JSB Tien Phong Commercial JSB HDBank LienViet Post Bank MBB VN ADD 27,200 40,800 4.4 1.4 1.1 6.7 5.5 21.7% 24.5% 24.1% 2.5% 2.6% ACB VN ADD 25,350 41,800 3.7 1.2 1.0 5.8 4.9 17.1% 23.6% 22.4% 2.1% 2.1% VIB VN ADD 26,300 46,400 2.4 1.8 1.4 6.6 6.4 19.3% 26.7% 24.7% 2.1% 2.0% TPB VN HDB VN LPB VN ADD ADD ADD 32,000 26,000 14,600 41,100 35,900 21,300 2.2 2.3 0.9 1.6 1.4 1.1 1.3 1.0 0.7 8.4 7.0 5.8 6.7 4.8 4.6 23.0% 21.5% 26.8% 20.9% 23.6% 17.8% 21.1% 23.6% 18.8% 1.9% 2.0% 1.1% 2.1% 2.0% 1.2% 1.5 1.2 8.2 6.8 21.2% 21.3% 21.2% 2.1% 2.1% Banks Target Price LC 95,600 44,900 40,600 66,400 Market cap P/BV (x) (US$bn) FY22F FY23F 16.1 2.5 2.2 5.8 1.4 1.2 5.7 1.3 1.1 5.5 1.1 0.9 3-yr Forward CAGR EPS P/E (x) FY22F FY23F % 16.6 13.8 20.8% 8.9 7.2 24.5% 11.1 9.5 16.3% 5.6 4.7 20.6% Average ROE % FY22F FY23F 20.0% 20.9% 17.6% 18.3% 16.3% 16.9% 22.1% 21.6% ROA % FY22F FY23F 1.7% 1.8% 2.5% 2.6% 1.0% 1.1% 3.6% 3.7% Source: VNDIRECT Research Figure 32: Vietnam banks enjoyed the highest profitability compared to peers, thus deserving a premium valuation Ticker China 1288 HK 3968 HK 3988 HK 3328 HK Avg Malaysia MAY MK PBK MK CIMB MK HLBK MK RHBBANK MK AMM MK BIMB MK ABMB MK Avg Thailand KBANK TB SCB TB BBL TB KTB TB TISCO TB KKP TB Avg Indonesia BBCA IJ BBRI IJ BMRI IJ BBNI IJ Avg Vietnam VCB VN VPB VN TCB VN CTG VN MBB VN ACB VN VIB VN TPB VN HDB VN LPB VN Avg Comp name Current price (LC) Mkt cap (US$m) P/BV (x) P/E (x) NIM (%) ROE (%) ROA (%) TA/TE (x) 5Y EPS Growth Agricultural Bank of China Ltd China Merchants Bank Co Ltd Bank of China Ltd Bank of Communications Co Ltd 3.0 48.8 3.1 5.3 155,915 149,077 134,100 52,605 0.4 1.4 0.4 0.4 0.6 3.7 8.4 3.5 3.8 4.9 2.2% 2.5% 1.8% 1.5% 2.0% 12.0% 17.2% 11.7% 11.4% 13.1% 0.8% 1.4% 0.8% 0.8% 0.9% 12.0 10.7 11.4 11.9 11.5 3.4% 13.4% 5.3% 5.4% 6.9% Malayan Banking Bhd Public Bank Bhd CIMB Group Holdings Bhd Hong Leong Bank Bhd RHB Bank Bhd AMMB Holdings Bhd Bank Islam Malaysia Bhd Alliance Bank Malaysia Bhd 8.9 4.6 5.1 21.2 5.9 3.7 2.9 3.6 24,288 20,445 12,274 10,457 5,610 2,826 1,430 1,253 1.3 1.9 0.9 1.5 0.9 0.8 1.2 0.9 1.2 13.5 16.2 16.0 14.1 9.4 0.0 11.3 9.6 13.9 1.6% 1.9% 2.0% 1.7% 1.5% 1.6% 0.0% 1.9% 1.8% 9.2% 11.8% 5.6% 10.4% 9.4% -19.9% 8.4% 9.0% 4.4% 0.9% 1.2% 0.5% 1.3% 0.9% -2.0% 0.7% 0.9% 0.5% 10.0 9.4 10.3 8.0 10.3 10.9 12.5 9.6 9.8 0.6% 1.6% 0.9% 7.0% 8.2% 0.0% 2.9% 2.0% 3.6% Kasikornbank PCL SCB X PCL Bangkok Bank PCL Krung Thai Bank PCL Tisco Financial Group PCL Kiatnakin Phatra Bank PCL 146.5 110.5 129.5 15.0 90.8 71.5 10,147 10,876 7,226 6,128 2,124 1,770 0.7 0.8 0.5 0.6 1.7 1.1 0.9 9.0 10.5 9.3 8.5 10.7 8.8 9.6 3.3% 2.8% 2.1% 2.5% 4.9% 4.3% 2.7% 8.2% 8.2% 5.6% 7.1% 16.2% 13.7% 9.0% 1.0% 1.1% 0.6% 0.7% 2.6% 1.6% 1.2% 7.6 7.5 8.8 9.5 5.9 8.5 7.9 -0.9% -5.7% -3.6% -7.8% 6.3% 2.6% -2.3% Bank Central Asia Tbk PT Bank Rakyat Indonesia Persero Tbk PT Bank Mandiri Persero Tbk PT Bank Negara Indonesia Persero Tbk PT 7,650.0 4,550.0 8,275.0 9,025.0 65,399 47,822 26,780 11,672 4.8 2.5 2.0 1.3 2.7 29.1 16.6 12.0 13.5 17.8 4.4% 6.9% 4.1% 4.1% 4.9% 17.4% 15.7% 17.1% 10.4% 15.1% 2.8% 2.4% 1.9% 1.4% 2.1% 6.1 5.8 7.8 7.6 6.8 8.8% 2.6% 15.2% -0.8% 6.5% Bank for Foreign Trade of Vietnam JSC Vietnam Prosperity JSC Bank Vietnam Technological & Commercial Joint Stock Bank Vietnam Joint Stock Commercial Bank for Industry and Military Commercial Joint Stock Bank Asia Commercial Bank JSC Vietnam International Commercial JSB Tien Phong Commercial Joint Stock Bank Ho Chi Minh City Development Joint Stock Lien Viet Post Joint Stock Commercial Bank 78,600 30,350 36,750 27,450 27,250 25,450 26,000 31,500 26,000 14,700 16,033 5,815 5,561 5,686 4,438 3,705 2,362 2,148 2,255 953 3.2 1.6 1.3 1.4 1.6 1.8 2.1 1.8 1.7 1.2 1.6 16.2 7.8 6.7 10.7 7.5 8.3 8.2 9.5 8.1 6.7 8.2 3.4% 7.6% 5.8% 2.9% 5.3% 4.3% 4.7% 4.6% 4.5% 3.2% 4.4% 21.1% 24.0% 21.7% 13.0% 23.7% 24.2% 29.5% 22.0% 23.1% 18.5% 22.0% 1.7% 3.4% 3.6% 0.8% 2.4% 2.1% 2.3% 1.9% 1.8% 1.1% 2.0% 13.0 6.3 6.1 16.4 9.7 11.8 12.7 11.3 12.2 17.2 12.2 28.7% 11.4% 39.4% 21.4% 32.9% 51.4% 59.8% 46.8% 47.1% 15.5% 33.1% Source: VNDIRECT Research www.vndirect.com.vn 11 VNDIRECT RESEARCH DISCLAIMER This report has been written and distributed by Research Department, VNDIRECT Securities Corporation The information contained in this report is prepared from data believed to be correct and reliable at the time of issuance of this report Unless otherwise stated, this report is based upon sources that VNDIRECT considers to be reliable These sources may include but are not limited to data from the stock exchange or market where the subject security is listed, or, where appropriate, any other market Information on the company(ies) are based on published statements, information disclosure and announcements of the company(ies), and information resulting from our research VNDIRECT has no responsibility for the accuracy, adequacy or completeness of such information All estimates, projections, forecasts and expression of opinions contained in this report reflect the personal views and opinions of the analyst(s) responsible for the production of this report These opinions may not represent the views and position of VNDIRECT and may change without notice This report has been prepared for information purposes only The information and opinions in this report should not be considered as an offer, recommendation or solicitation to buy or sell the subject securities, related investments or other financial instruments VNDIRECT takes no responsibility for any consequences arising from using the content of this report in any form This report and all of its content belongs to VNDIRECT No part of this report may be copied or reproduced in any form or redistributed in whole or in part, for any purpose without the prior written consent of VNDIRECT RECOMMENDATION FRAMEWORK Stock Ratings Definition: Add The stock’s total return is expected to reach 15% or higher over the next 12 months Hold The stock’s total return is expected to be between negative 10% and positive 15% over the next 12 months Reduce The stock’s total return is expected to fall below negative 10% over the next 12 months The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net dividend yields of the stock Stock price targets have an investment horizon of 12 months Sector Ratings Definition: Overweight An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation Neutral A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation Underweight Hien Tran Khanh – Research Director Email: hien.trankhanh@vndirect.com.vn – – Thao Tran – Analyst Email: Email: thao.tranthu2@vndirect.com.vn Viet Le – Analyst Email: viet.lequoc2@vndirect.com.vn VNDIRECT Securities Corporation Nguyen Thuong Hien Str – Hai Ba Trung Dist – Ha Noi Tel: +84 2439724568 Email: research@vndirect.com.vn Website: https://vndirect.com.vn www.vndirect.com.vn 12 ... SBV, VNDIRECT Research 2022F Source: Commercial banks, VNDIRECT Research A decent starting for banking sector 1Q22 aggregate net interest income (NII) of 15 listed banks rose 18% yoy on a 18.9%... gather pace in 2022 driven by robust export growth, demand recovery and fiscal policy support; and banking sector would be the best proxy to Vietnam economic resurgence Although NIMs are difficult... growth, fast-growing fee incomes, lower CIR and well-controlled credit cost Meanwhile, Vietnam banking sector is trading at 1.53x FY22F P/BV on average – lower than its 3Y-average range of 2x