TCB update – BUY

VIETNAM TECHNOLOGICAL AND COMMERCIAL BANK (TCB)

We reiterate our BUY recommendation with a target price of VND63,100 per share. TCB’s long-term outlook remains positive, although the Government’s actions to tighten corporate bond issuances, which could negatively impact TCB’s fee income in 2022.

Q1/22’s PBT grew 23% YoY thanks to a sharp drop in provision expenses

Outstanding credit (including corporate bonds) at the end of Q1/22 grew by 7.9% compared to the beginning of the year and increased by 28.5% YoY. In which, outstanding corporate bonds increased by 22.2% YTD and by 59.3% YoY. By the end of April, TCB had used up the credit growth limit granted by the SBV (9-10%).

Total income in Q1/22 reached VND10,112 billion, grew 13.2% YoY. Total income growth slowed down due to a loss of VND314 billion in securities trading, compared to a net profit of VND746 billion in the same period of last year. Government bond yields increased at all maturities, forcing TCB to make provisions for the government bond investments.

Main business activities maintained high growth rates. Net interest income and net fee income increased by 32.5% YoY and 35.3% YoY respectively. NIM were back to pre-COVID 4th wave levels thanks to a recovery in loan yields and high CASA ratio of 50.4%.

Operating expenses increased by 21.3% YoY as TCB continued to invest in staff, marketing, IT systems and digital transformation. CIR remained at 30.7%, similar to previous quarters.

Provision expenses dropped sharply by 74.3% YoY, at only VND218 billion, this is the lowest level in the last 11 quarters. Provisioning pressure in Q1/22 was insignificant thanks to TCB’s good asset quality. NPL ratio at the end of Q1/22 was at 0.67%, equivalent to the beginning of the year. COVID-19 restructured loans continued to decrease to VND1,600 billion, accounting for 0.44% of total outstanding loans and were fully provisioned. NPL coverage ratio stood at 161%, equivalent to the previous quarter. 

Reiterate BUY recommendation with target price of VND63,100 per share

We forecast TCB’s PBT in 2022 to reach VND25,717 billion, +10.7% YoY. Our 1-year target price for TCB is VND63,100 per share using a discounted residual income method. Our target price is equivalent to 1-year forward P/E and forward P/B of 10.3x and 1.84x respectively.

TCB’s share price has dropped 30% from the price range of VND50,000 per share to VND35,000 per share range since the beginning of April. TCB is currently trading at a forward P/E and forward P/B of 2022 of 6.2x and 1.1x respectively. This sharp drop in price makes TCB’s share attractive to long-term investors, although the government’s actions and macro volatility may put pressure on stock price in the short-term.

View details in full report below.