VCB_4Q20_Build up stronger buffer
08/01/2021 - 08:25
TP upside (downside) -40%
Close 6 Jan 2021
Price VND 105,000
12M Target (*) VND 75,140
* Our valuation is under review.
VCB reported preliminary 4Q20 PBT of VND7.0 tn (+41% QoQ/+28% YoY) driven largely by high credit growth 14% YoY (vs. +7% YTD as at 3Q20). In 2020, VCB’s preliminary PBT was VND23 tn (-0.5% YoY), fulfilling 98% of our forecast for 2020.
Credit growth recovered in 4Q to reach 14% YTD, completing 136% of our 2020 forecast. This is the highest level of credit growth among SOCBs in 2020. The bank explained that this was due to high capital demand at yearend.
Despite high credit growth, 2020 PBT was slightly down compared to that of 2019. This was largely because the bank reduced loan rates to support Covid19-impacted clients, resulting in a reduction of VND3.7 tn in interest income (equivalent to 16% of 2020 PBT).
Moreover, VCB accelerated provisioning against possible asset quality deterioration, which dragged 2020 earnings. VCB’s LLR ratio was 380% (+165ppt QoQ/ +198ppt YoY) as at 4Q20, which we believe is by far the sector’s highest reserve coverage figure.
Strong asset quality. VCB’s reported NPL ratio was only 0.6% (-40bps QoQ/ -18bps YoY).
We continue to view VCB as the highest quality bank in Vietnam. VCB’s leading loan loss coverage continues to reflect its prudent approach to credit risk, which is unmatched among its peers. High credit costs were the main negative factor for 2020 earnings, but VCB’s exceptionally high LLR allows for greater flexibility than most banks to lower provisioning and thus boost 2021E earnings without sacrificing asset quality.
Moreover, net interest income should recover in 2021. Assuming no resurgence of the pandemic, we expect VCB to refrain from reducing interest rates to support clients in 2021.
Fee income should rise given upfront bancassurance fee recognition in 2021. The bank did not book its upfront fee from the bancassurance exclusivity deal with FWD in 2020. We expect VCB to recognize the upfront fee starting from 2021, which will help boost its pre-provisioning operating profit.
Our forecasts and recommendation are under review. Strong domestic-driven liquidity has boosted the stock market, with banks including VCB among the leaders. The stock now trades at 3.4x 2021E P/B vs. the increased sector median of 1.4x.
For the complete report, please access here: VCB_4Q20_Express note
Analyst: Tanh Tran, firstname.lastname@example.org