BID – Completion of enhanced provisioning process

• BID demonstrates its position as one of the leading banks in the industry by maintaining growth in most of its core business segments. Specifically, net interest income increased by 9% YoY and net fee income grew by 19% YoY. Although total operating income grew only 6.5% YoY, provision expenses became a factor that helped BID achieve a significant growth in its profit before tax of 53% YoY.
• Annualized cost of funds continued to trend up reflecting the continuous deposit rate hikes taking place in the last months of 2022, with a quarter-over-quarter 81-bps increase. Meanwhile, as average loan yield followed a lagging repricing trajectory, which improved by 57 bps and translated into a 61-bps climb in assets yield, BID’s NIMs (annualized) kept declining by 15 bps QoQ to reach 2.67% in 1Q23. Despite that, the widened share of higher-yield customer loans in total interest-earning assets allocation also made a favorable contribution to NIM, offsetting the comparatively poor average yield of debt securities.
• Strengthening the provision to supplement the LLR in the previous years will provide a basis for the company to reduce credit costs in the future. We project the bank's credit costs to be 1.4% and 1.2% for 2023 and 2024, respectively, compared to the range of 1.67% to 2.3% during the period of 2018-2022. Projected PBT for 2023-2024 is VND 26,992 billion (+17.3% YoY) and VND 35,305 billion (+30.8% YoY).
• We estimate the fair value of BID at VND 48,600/share, equivalent to a forward P/B for the one-year timeframe of 2.08x. This price is equivalent to an expected return of 7% compared to the closing price on June 27th, 2023. Therefore, we recommend to ACCUMULATED BID.