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8 May 2018
Q1 18 wrap: positive revenue surprises
 Strong revenue generation cushions ramp-up in impairment charges.
ASIA FINANCIALS Aggregate net profit for our coverage universe rose 33% yoy to
VND10.4tn, 34% above our VND7.8tn forecast (Table 1). Revenues were
the key driver of the positive surprises, although loan impairment charges
were higher than expected. Resolution of VAMC assets also appears to be
on track for all banks. Please see our BID, CTG, STB, VCB and VPB
results reviews for further details.
 Our views on the sector reaffirmed: Given Vietnam’s relatively healthy
macro outlook and stable politics, we continue to see near- and medium-
term earnings tailwinds from robust top-line growth (margin expansion, non-
interest income improvement) and falling VAMC credit costs. However, we
VPB VN BUY remain cautious on the sector long-term, due to its lagging ROA, poor liquidity
Current price (VND) 54,200 and weak capital. Following recent share price weakness, the sector’s current
Target price (VND) 75,300
valuation looks less challenging at median 2.3x 2018f P/B / 16.3x 2018f P/E,
though this remains well above 1.3x 2018f P/B / 9.0x 2018f P/E for Exotix
ETR % 39%
frontier banks. We reiterate our Buy recommendations on VPB and BID
ADV (US$mn) 3.6 (recently upgraded), keep CTG and STB on Hold and VCB on Sell.
BID VN BUY  Loan growth missed slightly, but margins beat. The five Vietnam banks
Current price (VND) 33,000 under our coverage reported credit growing 17% yoy / 4% qoq to
Target price (VND) 41,900 VND2.7tn, 1% below our forecast. VCB (+16% yoy / +6% qoq) beat our
ETR % 28%
expectation, while BID (+16% yoy / +1% qoq) and VPB (+24%yoy / +4%
qoq) missed, partly due to seasonality. Sector margins expanded 21bp yoy
ADV (US$mn) 3.2
/ 8bp qoq to 4.1% (4.0% forecast), due to mix effects for both assets
CTG VN HOLD (increasing retail lending) and funding (more deposits, less debt). We think
Current price (VND) 29,400 debt is likely to increase in the coming quarters as banks comply with the
Target price (VND) 32,800 40% cap on asset-liability mismatches. Margins expanded the most at BID
ETR % 12%
(+35bp yoy / +30bp qoq) and STB (+64bp / +16bp) as these banks
continued to clean up their balance sheets. VCB reported poorer margin
ADV (US$mn) 4.8
evolution (-15bp / +5%) as declines in asset yields offset improved funding
STB VN HOLD costs. VPB’s 9.4% annualised NIM in Q1 remains the sector’s highest.
Current price (VND) 13,650  Non-interest income up 63% yoy. The key drivers were: higher fee
Target price (VND) 15,300 income (+27% yoy); trading income (+224% yoy); and other operating
ETR % 12% income (+108% yoy, likely on bad debt recoveries). We expect stronger
ADV (US$mn) 4.9 future fee income generation as bancassurance commissions start coming
through (STB, VPB). Aggressive write-offs over the past few quarters also
VCB VN SELL imply steady income from bad debt recoveries is likely in the future.
Current price (VND) 60,900
 Sharp jump in loan impairment charges, but only moderate increase
Target price (VND) 43,200
in NPLs. Our five banks reported loan provision costs reaching 217bp of
ETR % -29% gross loans in Q1, up 83bp yoy / 64 qoq and 18bp higher than our forecast.
ADV (US$mn) 4.7 The key drivers were large write-offs at BID (3.6% of gross loans) and VPB
(4.5%), which we view as positive from an asset clean-up perspective. The
Contact: average NPL ratio was unchanged yoy at 2.6% (versus 2.2% forecast).
Phuong Pham Consequently, NPL coverage improved 63bp to 74% (78% forecast).
+34 935 19 07 92 Restructuring BID and STB reported the biggest drops in NPL ratios, while
phuong.pham@exotix.com the consumer-finance-skewed VPB reported the largest NPL increase.
 We have already trimmed our 2018f EPS forecasts by 4% on average,
Rahul Shah
driven by BID (-15%, 1ppt cut in loan growth and 9% increase in expected
Waseem Khan
loan impairment charges) and VCB (-4%, 1ppt cut to our loan growth forecast).

Recommendations and opinions in this report, unless otherwise stated, are based on a combination of discounted cash flow analysis, ratio analysis, industry knowledge, logical extrapolations, peer group
analysis and company specific and market technical elements (events affecting both the financial and operational profile of the company). Forecasting of company sales and earnings are based on
segmented top-bottom models using subjective views of relevant future market developments. In addition, company guidance and financial guidance is taken in to account where applicable. This report is
on a stock under “active coverage”. All prices provided within this research report are taken from the close of business on the day prior to the issue date unless explicitly stated.
Please see disclosures on the last page of this report.
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Table 1: Vietnam banks – aggregate Q1 18 results summary (VNDbn)

yoy chg qoq chg Variance vs

Income statement Q1 17a Q4 17a Q1 18a Q1 18f
% % forecast %
Net interest income 24,128 26% 28,119 8% 30,295 4% 29,260
Net fee income 2,424 27% 3,189 -3% 3,078 3% 2,991
Other non-interest income 3,256 89% 5,008 23% 6,163 84% 3,345
Total operating income 29,808 33% 36,315 9% 39,635 11% 35,688
Total operating expenses 12,701 14% 17,161 -16% 14,450 -2% 14,681
Pre-provision profit 17,107 47% 19,154 31% 25,185 20% 21,007
Loan impairment charge 5,604 146% 6,274 120% 13,785 37% 10,098
Financial asset impairment charge 1,894 -163% 3,061 -139% -1,190 -210% 1,082
Net operating profit 9,609 31% 9,818 28% 12,590 28% 9,827
Profit before tax 9,792 33% 10,947 19% 12,995 30% 10,010
Profit after tax 7,846 33% 8,794 19% 10,456 34% 7,812
Net profit 7,809 33% 8,709 19% 10,397 34% 7,762
yoy chg qoq chg Variance vs
Balance sheet Q1 17a Q4 17a Q1 18a Q1 18f
% % forecast %
Gross loans 2,314,405 17% 2,606,621 4% 2,701,282 -1% 2,719,348
Total assets 3,382,170 19% 3,978,866 1% 4,010,584 -3% 4,128,475
Total interest-earning assets 3,080,297 19% 3,588,260 2% 3,659,007 -2% 3,728,702

Customer deposits 2,470,587 18% 2,774,851 5% 2,912,669 1% 2,886,570

Total liabilities 3,181,975 19% 3,759,724 1% 3,782,398 -3% 3,899,661
Shareholders' equity 198,148 13% 215,884 4% 224,813 0% 225,485
yoy chg qoq chg Variance vs
Key ratios (average) Q1 17a Q4 17a Q1 18a Q1 18f
(bp) (bp) forecast %
Loans/deposits 92.96% 136 96.44% -213 94.32% -274 97.06%
NIM 3.87% 21 4.01% 8 4.09% 13 3.95%
Gross asset yield 7.65% 15 7.83% -4 7.79% 18 7.61%
Gross funding cost 4.13% -3 4.24% -13 4.11% 4 4.07%
Fees/assets 0.35% 2 0.44% -7 0.37% -1 0.38%
Cost/income 48.2% -565 51.4% -885 42.5% -364 46.2%
NPLs/gross loans 2.6% -4 2.4% 19 2.6% 34 2.2%
Impairment charge/gross loans 1.3% 83 1.5% 64 2.2% 18 2.0%
ROA 1.1% 14 1.1% 20 1.3% 45 0.8%
ROE 16.9% 144 15.4% 297 18.4% 532 13.1%
Equity/assets 6.5% 6 6.4% 12 6.5% 16 6.4%
Source: Company reporting, Exotix forecasts

Table 2: Vietnam banks – EPS forecast changes already made in Q1 18 individual bank reviews, 2018-21f (VND)
2017 2018f 2018f 2018f 2019f 2019f 2019f 2021f
actual new old change new old change change
% % %
VPB 4,564 5,044 5,035 0% 5,646 5,872 -4% -3%
BID 1,514 1,817 2,140 -15% 2,749 2,967 -7% -4%
CTG 1,546 2,561 2,562 0% 3,117 3,160 -1% -3%
STB 650 838 835 0% 1,098 1,088 1% -1%
VCB 2,103 2,928 3,040 -4% 3,729 3,932 -5% -5%
Exotix Viet banks average -3% -4% -3%
Source: Exotix forecasts

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Table 3: Vietnamese banks – Q1 18 key performance indicators

Median Median
Asset growth yoy 20% 13% 26% 24% 11% 19% 17% 27% 17% 20% 18%
Loan growth yoy 16% 18% 16% 24% 11% 19% 32% 28% 19% 16% 22%
Deposit growth yoy 19% 18% 20% 11% 12% 17% 4% 24% 2% 19% 11%
Loans/deposits 95% 103% 76% 130% 67% 81% 98% 80% 89% 95% 85%
NIM 3.26% 2.81% 2.73% 9.44% 2.20% 3.57% 4.25% 4.73% 4.17% 2.81% 4.21%
Fees / assets 0.25% 0.21% 0.35% 0.45% 0.58% 0.48% 0.23% 0.40% 0.73% 0.25% 0.47%
Cost / income 25% 40% 42% 31% 75% 51% 44% 38% 34% 40% 41%
NPLs / gross loans 1.64% 1.25% 1.37% 4.15% 4.53% 0.70% 1.37% 1.14% 1.58% 1.37% 1.47%
NPL coverage ratio 80% 98% 121% 44% 27% 135% 77% 112% 76% 98% 76%
Impairment charge / gross loans 3.65% 0.85% 1.02% 5.19% 0.15% 0.27% 0.70% 1.45% 3.87% 1.02% 1.08%
ROA 0.7% 0.9% 1.4% 3.0% 0.4% 1.6% 1.6% 2.0% 3.0% 0.9% 1.8%
ROE 16.9% 15.0% 25.8% 27.3% 6.8% 27.6% 20.9% 21.5% 25.4% 16.9% 23.5%
Source: Company reporting, Exotix estimates
Note: SOB = state-owned bank. JSCB = joint stock commercial bank. NR = non-rated. NL = non-listed.

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consistent treatment of all Exotix Capital's research. This report has been produced by Phuong Pham, Rahul Khan and Waseem Khan who are the Analysts (the "Analyst").
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