INVESTMENT THESIS
CTG is one of Vietnam’s four state-owned banks with 64.5% state ownership. Traditionally focused on corporate lending, CTG is actively shifting towards offering retail lending and services, prioritizing sectors such as manufacturing and commerce rather than real estate, a trend distinct from its peers.
Credit growth of 9% in the first 9 months of 2024 with strong performance recorded in the retail segment at 11.9% YTD. Corporate lending also recorded positive growth, with FDI enterprises increasing by 18.5% YTD and large enterprises by 6.8% YTD.
After 9 months, total operating income and pre-tax profit reached VND 60,624 billion (+16.2% YoY) and VND 19,513 billion (+12.1% YoY). The CASA ratio slightly increased to 22.4%. Net interest income recorded VND 46,091 billion (+19.7% YoY). NIM in the third quarter slightly decreased to 2.9% due to declining yields amid competitive lending pressures and efforts to support customers. Other income increased by 38.5%, driven by the recovery of a large-scale bad debt in the third quarter.
The CIR remained low at 27.8%, lower than the same period last year as the bank continued to improve operational efficiency. The NPL ratio decreased to 1.45%, while the special-mention debt ratio remained flat at 1.44%. In the first 9 months of 2024, CTG continued to increase provision expenses to VND 25,135 billion (+21.8% YoY), raising the LLCR to 153%, the second-highest level in the banking system.
Business results forecasted for 2024: Total operating income is projected to reach VND 80,081 billion (+13.5% YoY), while pre-tax profit is estimated at VND 28,820 billion (+15.3% YoY). Credit growth is forecast to be 15%, with NIM at 2.9%, ROE at 17.2% and NPL ratio is expected to be 1.5%.
Improved NIM as CTG shifts towards retail lending: As lending rates are projected to remain low, CTG can improve its profit margin. CTG's 2025F NIM is forecast to be stable at 2.94%, a 4bps YoY increase.
Credit costs are expected to decrease in 2025: CTG’s proactive approach to resolving bad debt since 2019 has kept its credit costs at 1.6-1.8% over the past five years. With improved asset quality, credit costs of CTG are projected to decline to 1.3% in 2025, supporting the forecast in 2025F of a 34% YoY increase in pre-tax profit to VND 38.6 trillion.
A capital increase is urgently needed: CTG plans to issue a stock dividend to increase its charter capital to approximately VND 74,200 billion, representing a 38% increase compared to the end of 2023. With a CAR of 9.5%, CTG has one of the lowest capital adequacy ratios among state-owned banks, necessitating a capital increase.
Prospects:
1-year forward P/B of 1.1x, CTG’s valuation is currently in line with major private banks. However, given its improving ROE, we believe CTG warrants a higher P/B of 1.4x, corresponding to a 1-year target price of VND 46,200/share.
Risks:
(1) Higher-than-expected credit costs.
(2) Lower-than-anticipated credit growth.
RECOMMENDATION:
OUTPERFORM recommendation with a 1-year target price of VND 46,200/share and an upside potential of 22%.
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