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TCB - SEVERAL BRIGHT SPOTS IN Q3 PERFORMANCE

• In the third quarter, TCB's total operating income reached VND 10.4 trillion (+0.8% YoY and +11.7% QoQ), indicating signs of recovery based on the quarter basis. This recovery was attributed to (1) a 15.5% QoQ increase in net interest income, driven by strong credit growth and a 42-basis point improvement in NIM compared to the previous quarter, and (2) non-interest income of 3.1 trillion VND, with a 3.8% QoQ growth. Within this category, fee income contributed VND 2.2 trillion (+11.7% QoQ) due to the robust resurgence of fees from investment banking services, driven by market liquidity recovery and bond issuance activities (+93% QoQ) and bancassurance activities (+74% QoQ); income from foreign exchange operations reached VND 124 billion, compared to a loss in Q2; and income from securities trading increased by 659% compared to the previous quarter.
• The NPL (Non-Performing Loan) ratio of TCB in the third quarter after CIC was 1.4%, an increase of 30 basis points compared to the previous quarter and a 73 basis point increase year-on-year. Within this, non-performing loans were mainly attributed to the retail and SME segments, with ratios of 2.47% and 2.16%, respectively, primarily due to the impact of the real estate market and the credit card segment. However, the Group 2 loans shown a positive trend by decreasing to 1.26% from 1.96% in the previous quarter.
• Our PBT for TCB in 2023 is expected to be more positive compared to the bank's plan presented at the Annual General Meeting earlier this year. We anticipate a more stable growth in 2024, with PBT reaching VND 23 trillion (-10.5%) and VND 27 trillion (+17.5%), corresponding to an EPS of 5,087 and VND 5,986. This means that TCB's PBT in 2H2023 is expected to improve to 11.7 trillion VND (+4% HoH and +2% YoY). Despite modest expansion potential in 2023 due to challenging conditions, we have an optimistic outlook for long-term prospects for balance sheet growth, thanks to TCB's pioneering and successful efforts in the retail banking sector and the long-term potential in the real estate sector in Vietnam. Key factors contributing to this outlook are (1) leading technology infrastructure, (2) strong capital buffer, and (3) a well-connected ecosystem, which will help the bank grow rapidly during periods of economic prosperity. Therefore, as the bank navigates through the challenging phase, improving Return on Equity (ROE) will lead to a revaluation of the bank.
• TCB is currently trading at a P/B (Price-to-Book) ratio of 0.8, which is lower than the industry average and below the bank's long-term prospects. Therefore, we recommend to ACCUMULATE TCB with a target price of 38,000 VND, corresponding to a P/B ratio of 1. However, it's important to note that, given the specific nature of the loan portfolio for businesses and individuals in the real estate sector, the pace of recovery in this industry will impact the NIM recovery through credit costs in the second half of 2023 and 2024.