ACB -Valuation remains attractive given strong ROE – Update

• We maintain our ADD rating with 24.4% upside. We rise our TP by 23.2% while the shares have increased 24.4% since our last report.
• We raise our TP given a lower cost of equity and FY24’s BVPS rising 17.4%.
• YE24 P/B of 1.3x, a 14.2% discount to both ACB and the sector’s five-year average P/B of 1.5, is attractive given that ROAE remains above the sector average.

Financial Highlights

• TOI maintained modest growth for a second quarter in 1Q24, inching up 3.1% YoY (-2.5% QoQ) to VND8.2tn (USD323mn), due to a decrease of Non-II, while NII improved.
• 1Q24 PBT inched down 5% YoY (-3.0% QoQ) to VND4.9tn (USD193mn) due to TOI remaining low and increases in operating and provisioning expenses.
• 1Q24 ROE continued to decelerate to 21.4%, but remained higher than the sector average of 17.4%.

Investment Thesis

Credit growth will be driven by business loans through 2025

We project credit growth to reach 16% YoY, higher than our forecast of 14.3% for FY24. The higher credit growth will be supported by the recovery of the Vietnam economy, which will boost demand for both business and mortgage loans. Currently, business and mortgage loans together account for 60-70% of the loan book structure.

NIM will expand given retail demand surge through 2025

We expect NIM to expand 0.2% pts YoY to 4.1%, driven by a higher net interest rate spread due to the ability to pass on interest costs amid a strong recovery in retail demand. In FY25, we forecast the cost of funds (COF) to increase to 3.0% from 2.9% in FY24 due to a low base interest rate environment in FY24. However, we anticipate that retail demand will fully recover in 2025 as the economy is expected to fully recover. Therefore, ACB will be able to pass on interest costs to customers.

Better income will reduce provisioning pressure

We expect credit cost to decrease to 0.34% from our forecast of 0.46% in FY24 We believe that in 2025 better personal income and improved performance of investment assets (stocks, real estate, businesses) will drive ACB’s NPL formation ratio down to 0.25% from 0.45% in FY24. Therefore, ACB will experience less pressure on provisioning.

Valuation still attractive given high ROE

The current price is 1.3x at YE24 BVPS, which is 14.2% below both ACB’s and the sector’s five-year average of 1.5x. We believe ACB valuation is still at an attractive level given ACB’s ROAE of 22% during FY24-25, which is higher than the sector average of 18-19%.

Please follow this link for the full report.