VPB VN_Down-shifting to lower growth mode

HOLD-Underperform
TP upside (downside)   -6%
Close 25 May 2020
Price                        VND 24,000
12M Target            VND 22,500
Previous Target    VND 25,530
Change                            -12%

What’s new?

• We slash our earnings forecasts by 27% for 2020E and 15% for 2021E.
• We reduce our credit growth assumptions due to the impact of Covid-19.
• NIM will decrease due to reduced overall loan yields and recalibrated focus toward secured loans.

Our view

• Downgrade to HOLD-Underperform.
• VPB is trading at 1.1x 2020E P/BV, in line with the sector, while our reduced 2020E ROE of 16% is lower than the sector median of 18%.
• Risk to our view? FE Credit’s IPO this year: We think it extremely unlikely, but we can’t totally rule it out.

Reduced loan growth assumptions. We expect loan growth throughout the sector to weaken due to the impact of the Covid-19. Thus, we lower our 2020E loan growth forecast for VPB by -1ppt to 11% YoY.

NIM forecasts reduced by 14bps to 8.56% for 2020E. VPB has cut its lending rates for certain borrowers in line with SBV policy. The impact on NIMs should be exacerbated by its decision to focus more on secured loans and less on unsecured consumer loans.

SBV requires banks to restructure loan terms for borrowers affected by COVID while retaining pre-outbreak asset quality categorizations. According to baodauthau.vn, VPB has restructured VND12 trillion or 4.5% of its 1Q20 total loans as of May 4; notably, these assets are not classified as NPLs.

We assume VPB’s credit costs will increase regardless of the deferred classification downgrades. We expect VPB to prudently recognize provision for such restructured loans.

We slash our PATMI forecasts by -27% for 2020E and -15% for 2021E, largely on our increased credit cost assumptions and reduced net interest income, but tempered by lower forecasts for the bank’s operating costs.

Our reduced PATMI forecast are 14% below consensus for 2020. Our reduced forecasts for 2020 implies an earnings decline of -14% YoY.

We downgrade to HOLD-U/P. VPB trades at 1.1x 2020E P/BV which is in line with the sector median while our reduced ROE of 16% is slightly lower than that the peer median of 18%. Our target implies -6% total shareholder returns, justifying our recommendation downgrade.

For the complete report, please access here: VPB_Company Update_26.05.2020

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