VCB_1Q20 earnings down -11.2% YoY

BUY

TP upside (downside) +13%
Close 21 Apr 2019
Price                  VND 68,500
12M Target           VND 77,600

Event

VCB reported 1Q20 PATMI of VND4.2 tn (-5.2% QoQ/-11.2% YoY), largely due to the +9.2% QoQ/+42.9% YoY rise in credit costs. VCB has achieved 20% of Bloomberg consensus for 2020E.

Details

Credit growth increased by only 2.7% YTD. The bank targets 14% credit growth for 2020E, while we estimate 13% YoY growth.

1Q20 Net interest income was VND9.0 tn (+4.6% QoQ/+6.3% YoY).

Falling CASA deposits is a concern. CASA deposits fell by 7% QoQ. As at 1Q20, VCB’s CASA ratio was 29.4%, down 1.4ppt vs. 2019A.

1Q20 net fee income was VND1.1 tn (+27.2% QoQ/5.4% YoY). Net gain from FX and gold dealing was also VND1.1 tn (+31% QoQ/+19%YoY). By contrast, net income from trading securities declined by -284% QoQ and -183% YoY.

Provisioning increased by +9.2% QoQ and +42.9% YoY to reach VND2.2 tn in 1Q20. NPLs (0.82%) were flat QoQ but SMLs jumped by 110% QoQ. The bank’s loan loss ratio increased by 53ppt QoQ/+66ppt YoY to reach 235%.

Our view

Earnings forecasts for 2020E appear stretched (both ours and the consensus, which has already fallen since our March report). Credit growth, NIM, fee income, and provision costs will all be under pressure. 2Q20 is very likely to be worse than 1Q20, which puts the full year target at downside risk. Thus, negative earnings revisions for 2020 are likely to be forthcoming relatively soon.

Credit costs & LLR are key to monitoring asset quality in 2020. Reported NPLs (which are basically flat) will understate the degree of asset quality deterioration due to the SBV’s forbearance policies. We think the bank’s increased provisions and LLR reflect a prudent approach to preparing for the future, as not all borrowers will be able to repay. However, we think that VCB is taking the right approach by building up a strong buffer to weather the probable asset quality deterioration in upcoming quarters.

We reiterate our BUY recommendation. VCB trades at 2.5x 2020E P/B, which we consider to be attractive. Despite the current operational headwinds, VCB remains the highest-quality bank and is well positioned as a proxy on Vietnam’s positive multiyear macro story.

For the complete report, please access here: VCB_1Q20_Express note

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