TCB Update – NEUTRAL

VIETNAM TECHNOLOGICAL AND COMMERCIAL JOINT STOCK BANK (TCB)

We raise target price to VND49,000/share due to Q1/24 business results being more positive than expected but maintain our NEUTRAL recommendation because TCB stock price has increased 18.9% since our last report. Our target price is based on 12-month forward P/E and P/B of 6.7x and 1.1x, respectively.

In case TCBS Securities is IPO and listed in 2025, our target price of TCB may increase by VND11,000/share with the assumption that TCBS’s valuation is 2.5x of P/B, equivalent to the average P/B of leading securities companies.

Positive Q1/24 business results signal a promising year for TCB. Specifically, credit grew by 7.1% ytd and 19.5% y/y. NIM Q1/24 reached 4.42%, +18 bps q/q and +21 bps y/y thanks to cost of funds falling faster than earning asset yields. Although the interest rate environment is showing signs of increasing, we expect full-year 2024 NIM to reach 4.5% thanks to the thorough maturity of past high-interest-rate deposits and improved CASA ratio. In addition, credit is forecast to grow by 19% in 2024, helping net interest income grow by 31.8% y/y.

Non-interest income is forecast to continue to recover slowly because the banca and off-balance sheet debt collection segments are expected to continue to face difficulties, while the payment and investment banking segments begin to grow again. We expect non-interest income for the whole year 2024 to grow by 9% y/y.

Provision costs are forecast to increase sharply by 44.8% in 2024 as overdue debt shows signs of increasing in Q1/24 after two consecutive quarters of decline. Accrued interests also increased sharply by 20.4% q/q and 39.3% y/y, signaling that potential NPL risks are increasing. Restructured loans at the end of Q1/24 increased by 44.4% q/q and accounted for 0.46% outstanding loans. NPL coverage ratio continued to recover slightly to 106% by the end of Q1/24.

We forecast PBT in 2024 will reach VND30,380 billion, an increase of 32.7% y/y.