Earnings Report /

Vietcombank: 1Q2019 – Modest income growth; declining earnings due to surged provision cost

  • Operating income increased by 4.4% YoY, Service income only expanded by 5.4% YoY.

  • 2020 Outlook: Modest growth due to proactive supports to impacted customers.

  • We cut VCB’s target price to VND85,000, 10% lower than in our 2020 Strategy report. 14% upside, Accumulatate.

Rong Viet
12 May 2020
Published byRong Viet

Operating income increased by 4.4% YoY with modest growth in both NII and service income, while other activities (except FX trading) tended to decline. The 6.3% YoY growth in NII was the result of quarterly NIM expansion of 22bps YoY (to 3.3%) and a 2.8% YTD growth in total credit.

Service income only expanded by 5.4% YoY. FX income saw growth of 19.3% YoY while income from other activities declined by 10.9% YoY and securities trading incurred a loss of VND54bn (USD 1.2mn).

TOI growth was offset by operating expenses growth (+12.0% YoY), leading to a flat profit before provision YoY. Following, that the bank escalated provision expenses by 42.9% YoY reduced PBT by 11.1% YoY.

2020 Outlook: Modest growth due to proactive supports to impacted customers

Considering the impact of Covid-19, we cut our credit growth forecast to 13.0% and expect it to rise back to 15% in 2021. We also expect that NIM 2020 would be reduced by 7bps to 3.06% mainly due to the wide adoption of measures to support customers including lending rate cuts and loan extensions.

With the official launch of the exclusive bancassurance agreement since April, we expect services income to escalate (+38.7% YoY), equivalent to 11.3% of TOI.

CIR to drop slightly by 1ppt to 36.3% due to cost savings. Provision charge is very likely to be boosted to handle potential NPL, for which we forecast to grow by 81.0% YoY (excluding provisions for lending to other banks).

We reduce the core NPAT growth forecast to 7.5% YoY (excluding a part of the upfront fee with FWD agreement to be booked since this year).

Valuation and recommendation

Despite the anticipated slowdown due to the negative impact of Covid-19, we expect the bank’s growth to recover quickly upon an economic recovery. We believe that its sector-leading position, solid balance sheet, and conservative approach (both in the past and during the virus situation), would allow the bank to withstand the current storm.

With a lower 2020 earnings growth forecast and less favorable conditions in the stock market, we revise VCB’s target price to VND85,000, which is 10% lower than the latest in our 2020 Strategy report (VND95,000). Coupled with the plan of a cash dividend at VND800/share (which has been shared by the bank that will be kept until further official instruction by SBV), this target price translates to an upside of 14% from the closing price on 12 May 2020. We thereby have an ACCUMULATE recommendation on the stock.