Company Quarterly Earnings Update – TCB VN – 2019 Q4

Summary of the 2019 results of Techcombank (TCB VN)

2019 results: highlights
  • TCB’s net profit increased by 19.0% yoy, exceeding our forecast by 6.0%. Profitability was driven by a strong expansion of net interest income (NII), accounted for 67.8% total operating income) (+30bps yoy) and a drop in provision expense (-55.1% yoy). Non-interest income accounted for 32.2% of total operating income.
  • The bank enjoyed 19% credit growth in 2019, higher than sector average. Customer deposits are a bright spot as the current & savings account (CASA) ratio increased significantly from 28.7% to 34.5% thanks to attractive promotions. Asset quality improved with a 50bps reduction of the non-performing loan (NPL) ratio to 1.3%. The financial position remained solid: cash and deposits was 44.3% of total assets, and leverage was low (D/E and D/A of 0.08x and of 0.06x respectively).
  • Although TCB has an elevated exposure to the housing sector, the risk is diversified among the different stages and backed by a strong customer profile. TCB maintained its leading position in the capital adequacy with CAR of 15.5% according to Basel II.
Outlook
  • We expect TCB to achieve a 14% credit growth this year, mainly driven by mortgages, which we believe have room to grow given the strong housing demand. Funding costs should fall thanks to TCB’s high CASA balance, which we believe will result in a further increase of the NIM by another 30bps. In terms of capital adequacy, we expect little pressure for Tier 2 capital thanks to the bank’s outstanding CAR.
  • As for fee income, the main drivers here are bancassurance and bond related products. We maintain our positive view on these areas as life insurance and Vietnam’s debt capital market are still young and growing rapidly. Investment income however may show negative growth due to the smaller bond inventory balance and we don’t expect any significant recovery from written off bad debt in 2020.
  • We expect provision cost to rise by 37.1% in 2020 to improve the loan loss ratio (provision cost/NPL). Overall, we project TCB’s 2020 net profit to rise by 10.1%.
  • We think that the outbreak of COVID-19 may not seriously affect TCB as the bank’s exposure to the tourism, the airline and to the agriculture sector is minimal. Also, demand for housing is expected to remain strong, and unlikely to be impacted by a one-off event such as an epidemic.
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