VCB_Company Update_July 3, 2020

HOLD-Underperform

TP upside (downside) -9%
Close 2 Jul 2020
Price                                VND 82,600
12M Target                    VND 75,140
Previous Target            VND 77,600
Change                           -3%

What’s new?

• We cut our credit growth forecast by -3ppt to 10% YoY for 2020E, in line with guidance.
• Operating costs are under pressure as VCB plans to increase its headcount in 2020E.
• PATMI forecast slashed by 9% for 2020 and 5% for 2021E.

Our view

• VCB is still the highest quality bank in Vietnam, in our view.
• However, the valuation is stretched at 3.1x 2020E P/BV given the operational headwinds.
• Downgrade to HOLD-Underperform from the previous BUY rating. This is entirely due to the valuation.

Downgrading on valuations

Cutting our loan growth assumptions. Credit growth is set to slow for all banks in 2020E, and VCB is no exception with its 1H20 credit growth coming in at just 3.4% YTD. We cut our loan growth forecast by 3ppt to 10% in 2020E, in line with the bank’s target as announced in recent AGM.

Our previous opex assumptions were too generous. We raise our 2020 operating cost forecast by 5ppt to 9% YoY, as VCB plans to hire another 2.2K employees for a 12% YoY increase in headcount. Adj. CIR should thus reach 36.2% in 2020E (-90bps YoY, but +7ppt vs. our old forecast).

Increased provisioning assumptions. Reported NPLs remain low as a matter of SBV policy, but we expect VCB to prudently provision against asset quality deterioration anyway. We thus increase our gross provisioning forecast for 2020E to VND9.9tn (+46% YoY).

We slash our PATMI forecasts by -9% for 2020E and -5% for 2021E. Our reduced PATMI forecasts are in line with the consensus for 2020E and 2.5% above the consensus for 2021E.

VCB merits a valuation premium… VCB has the cheapest funding cost in the sector, backed by its high CASA ratio of 29.4% as at 1Q20. This is a competitive advantage vs. peers in cushioning NIM downside as banks cut lending rates to support Covid-impacted borrowers.

… but 3.1x P/BV is good enough. We still view VCB as the highest quality bank in our coverage but the current valuation is close to recent historical highs. The stock price has jumped 31% (vs. the price of VND82,700 on Jul 1) since our recent company update on Mar 27. VCB now trades at 3.1x 2020E P/BV. Our new target price implies a -9% TSR vs. the current market price, and we downgrade our recommendation to HOLD-Underperform.

For the complete report, please access here: VCB_Company Update_07.03.2020

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