MBB - Clearer Recovery Prospects in the Second Half of 2023

• In Q2/2023, MBB experienced a slowdown in its primary revenue sources within the backdrop of the industry's general difficulties, with a total operating income (TOI) of VND 11.5 trillion (+3% YoY). Net interest income (NII) was the driving force with a 6% growth, reaching VND 9.4 trillion and contributing 82% total income. For the first half of 2023, TOI and PBT amounted to VND 23.4 trillion (+3% YoY) and VND 12.7 trillion (+7% YoY), respectively, completing 49% of the guideline.
• Moving into Q3/2023, there were signals of interest rate cuts across the entire system, including MBB, in recent months the interest rates on deposit for certain tenures were adjusted downward in March. Therefore, the expected reduction in funding costs in the upcoming quarters is likely to contribute positively to the recovery of the net interest margin (NIM) due to stable asset interest rates.
• We estimate that MBB's interest income will become more positive in the latter half of 2023 (H2 2023) as credit growth continues to be strong compared to the industry, and NIM shows signs of recovery. However, the pace of TOI growth remains slow due to securities brokerage and insurance activities, which require more time to recover. In our baseline scenario, we project that MBB will achieve a 19% credit growth for the full year 2023, combined with a gradual NIM recovery from H2 2023 (+14 bps compared to the first half of the year). As a result, for the last six months of the year, net interest income is estimated to grow by 9% compared to the first half (+15% YoY), serving as the main driver for TOI (+17% YoY and +13% HoH). PBT for the second half of the year is estimated at VND 13.8 trillion, representing a 9% increase compared to the first half and a 28% increase compared to the same period in the previous year. For the full year 2023, TOI and PBT are projected to be VND 50.1 trillion (+10% YoY) and VND 26.6 trillion (+17% YoY), respectively. The estimated net profit after tax and earnings per share (EPS) for the corresponding period are VND 20.5 trillion and VND 4,214.
• MBB is currently trading at a price-to-book (P/B) ratio of 1.2, which represents a 21% discount compared to the 5-year average of 1.43 for this stock. Therefore, at a target price of VND 22,600 per share, corresponding to a P/B forward (fwd) ratio of 1 for 2023, we recommend buying MBB shares for medium to long-term holding with a potential profit of 19.7% compared to the closing price on October 6, 2023