Update VCB – BUY

BANK FOR FOREIGN TRADE OF VIETNAM (VCB)

Strong business growth in 2022 despite difficult macro environment

2022’s PBT grew by 36.4% from the previous year thanks to credit growth of 18.8%, NIM expanding by 0.24 pts to 3.46% and provision expenses down 19.5%.

Banking system liquidity stress caused interest rates to increase sharply in the period of Q3-Q4/22 which had a positive impact on VCB’s NIM thanks to its strong mobilization ability and its best liquidity position in the system.

Positive outlook for 2023 although profit growth will be slower

Interest rates decreased slightly since the beginning of 2023 but are still maintaining high levels. We expect VCB to still be able to keep the NIM level equivalent to 2022.

Asset quality is our top concern in 2023 despite the fact that VCB is always among the banks with the lowest NPL ratio in the system. Difficulties in the real estate and renewable energy markets, along with the taking over Construction Bank will put pressure on VCB’s asset quality and credit costs.

The positive point is that VCB’s relatively thick reserve buffer will help the bank have room to handle arising NPLs and keep asset quality at a good level. The provision of VND10,840 billion interbank loans is also a potential reversed provision when VCB recovers the loans.

We forecast VCB’s PBT in 2023 to reach VND44,222 billion, up 18.3%, higher than the management’s minimum growth target of 12%.

Valuations and recommendations

We reiterate our recommendation to BUY with an 1-year target price of VND101,000 per share using a discounted residual income method, equivalent to a 2023’s P/E and P/B of 14,8x and 3.0x.