CTG update – BUY

VIETNAM BANK FOR INDUSTRY AND TRADE (CTG)

We reiterate our BUY recommendation with a target price of VND40,700 per share. Reduced provisioning pressure will support profit growth in 2022.

High provision expenses making 2021’s profit have not yet surged

CTG’s profit before provisioning and tax reached VND35,970 billion in 2021, +23.1% YoY thanks to:

(1) NIM increased by 16 bps as deposit rates remained low and CASA improved by 0.5 percentage points to 20.1%;

(2) Good growth in all business segments, in which net interest income and non-interest income grew by 17.6% YoY and 16.7% YoY respectively; and

(3) Operating expenses had been well-controlled, CIR decreased to 32.3% compared to 35.5% of the previous year.

However, profit before tax in 2021 only increased by 3%, reaching VND17,589 billion. This result is 42.6% lower than our previous forecast due to:

(1) The economy was strictly locked down in Q3/21 due to the 4th wave of COVID-19 causing CTG’s asset quality to deteriorate. NPLs, Group 2 loans and COVID-19 restructured loans have all increased since the end of Q2/21, causing CTG to make high provisions, up 51.3% YoY and 184% higher than our previous forecast;

(2) CTG cut its loan interest income by VND2,259 billion to support customers due to the 4th wave of COVID-19 in 2H2021; and

(3) Upfront fee income from the exclusive bancassurance contract with Manulife has not been recorded in 2021.