Sector Update – Banking

PROFIT IS EXPECTED TO RECOVER FROM Q3/2023, VALUATION IS STILL ATTRACTIVE WITH A MID AND LONG TERM HORIZON

The outlook of profit in 2H2023 is expected to improve, based on:

• NIM is forecast to recover thanks to a rapid decrease in deposit rates and increase in CASA. Meanwhile, new lending rates are now in line with customers’ expectations and will decrease slower than deposit rates.

• Profit from government bond trading is forecast to recover strongly as Vietnam government bond yields fell by more than 2% in most maturities since the beginning of the year.

• However, provision expenses will be under upward pressure in the second half of 2023 as NPLs remain high and loan loss coverage are no longer thick.

• Profits of banks in the VN-Index are forecast to grow by 10% in 2023 (compared to a decrease of 2.5% in the first 6 months of 2023), slowing down from 34.6% growth in the year 2022.

Valuation is still attractive enough for mid to long-term investors

• Bank stock price has recovered 48% since the bottom in November 2022 and is currently trading at P/E of 9.3x and P/B of 1.8x, lower than 22.2% and 11.5% than the 10-year historical average, respectively.

• Although banking sector profits are forecast to slow down in 2023, with valuations still in attractive territory and bank stocks therefore are still suitable investment opportunities for mid to long-term investors.

Recommended stocks

The stocks in our BUY recommendation list are:

• STB (target price: 45,300 VND/share, +39.4%);

• MBB (target price: 25,200 VND/share, +37.0%);

• and TCB (target price: 43,000 VND/share, +26.5%).