MBB_2Q20_Lower provisions help earnings

BUY

TP upside (downside) +65%
Close 29 Jul 2020
Price                          VND 15,650
12M Target              VND 25,900

Event

MBB reported 2Q20 PATMI of VND2.3 tn (+32% QoQ/ +23% YoY) mainly due to lower provisioning and higher loan loss recoveries in 2Q20. MBB has achieved 46% of our forecast for 2020E in 1H20.

Details

Loans increased by 4% YTD, completing just 33% of our 2020E forecast.

2Q20 net interest income was VND4.6 tn (-2% QoQ/+5% YoY).

NIM on total average assets was 4.47% in 2Q20 (-13bps QoQ / -1bps YoY), which we attribute to slightly lower asset yields due to the SBV’s forbearance policies.

2Q20 net fee income was VND945 bn (+27% QoQ/-10% YoY). Other non-interest income (excluding loan loss recoveries) was VND466 bn (-29% QoQ/+62% YoY). Other income (mostly loan loss recoveries) increased +124% QoQ/+28% YoY to reach VND539 bn.

Provisioning decreased by -42% QoQ and -13% YoY to reach VND1.2 tn in 2Q20. But provisioning was up +40% YoY in 1H20. The reported NPL ratio was 1.37% (-25bps QoQ/+11bps YoY), reflecting the change in aggregate NPLs (-11% QoQ/+19% YoY).

LLR increased (+24ppt QoQ/+23ppt YoY) to reach 121% in 2Q20.

CASA deposits recovered somewhat. CASA deposits were VND92 tn (+15% QoQ/+7% YoY). However, CASA deposits in 2Q20 declined -12% vs. 2019A. MBB’s CASA ratio was 35.6% in 2Q20 (+2.5ppt vs. 1Q20), which we believe is still the highest of all the banks.

Our view

Earnings in upcoming quarters will be under pressure for all banks given the Covid-19 situation, and MBB will be no exception.

However, MBB’s high asset quality should help it better weather the storm compares than most banks. MBB regularly scores high for quality on our CAMEL analytical framework. We believe that the LLR ratio to is a key indicator of banks’ underlying asset quality given widespread non-recognition of NPLs due to the official forbearance policies. In our view, MBB’s increased LLR ratio in 2Q20 reflects a prudent approach in preparation for probable continued asset quality deterioration in upcoming quarters.

MBB is now our top BUY in the banks. MBB trades at 0.8x 2020E P/B vs. the sector median of 1.1x despite its superior operational quality to most of its peers. Our target price implies +65% 12-month total shareholder returns.

For the complete report, please access here: MBB_2Q20_Express note

Analyst: Tanh Tran, tanh.tran@yuanta.com.vn