VCB Update – OUTPERFORM

BANK FOR FOREIGN TRADE OF VIETNAM (VCB)

We raise VCB’s target price by 12% to VND98,000/share and upgrade our recommendation from NEUTRAL to OUTPERFORM. Our target price is equivalent to 12-month target P/E and P/B of 16.4x and 2.3x, respectively. VCB’s profit outlook improves  thanks to credit recovery, expanded NIM and well-managed opex.

Due to the high base of last year’s period and the previous quarter, PBT in Q1/24 decreased 4.5% y/y and 8.3% q/q, reached VND10,718 billion. However, we see many positive points in Q1/24 business results when most business segments recovered compared to Q4/23.

NIM Q1/24 decreased by 5 bps y/y but increased by 26 bps q/q, reaching 3.19%. We expect VCB’s NIM will continue to recover thanks to COF continuing to decline as last year’s high-interest deposits matured, while VCB’s lending rates are currently at a notably low level (approximately 6.5%) and there is minimal pressure for them to be reduced further.

Although outstanding credit balance decreased by 0.3% YTD in Q1/24, there were signs of improvement in Q2/24. It was shared by the management that as of June 17, credit growth reached 2.1% YTD and expected to reach 4.3% YTD growth by the end of Q2/24 and 12% for the whole year 2024.

NFI in Q1/24 decreased by 25.8% y/y but increased by 1.4% q/q. We forecast that NFI for the whole year 2024 will increase by 5.5% y/y thanks to the improvement of the payment and off-balance sheet loan collection segments following the recovery of the economy, while the banca segment is forecasted to continue to face difficulties.

Operating expenses in Q1/24 decreased by 4.2% y/y and decreased by 12.1% q/q. We expect VCB will strictly manage opex in 2024 (- 4.0% y/y) to protect their bottom line profits. CIR (not deducting bonus and welfare fund provisioning) decreased from 31-32% in previous years to 27.9% and is among the most efficient banks in the industry.

Provision costs are forecast to increase by 98.6% y/y in 2024 because in the last year, VCB reversed-provisioning more than VND5,100 billion for loans to another credit institution (likely to be Construction Bank). We also note that VCB still has nearly VND5,000 billion in provision balance for loans to another credit institution and this is a potential source of reversed-provisioning for VCB in the future.

We forecast that PBT in 2024 will reach VND45,394 billion, an increase of 10.1% y/y.