What leverage for VCB stocks?

Wide room for credit growth

VCB is one of the banks with good profit growth, despite generally slow credit growth and anticipated effects from Typhoon Yagi. Although the Q3/2024 business results are not yet available, the Q2 financial report shows that VCB continues to dominate the banking sector in profitability for the first half of 2024, despite the fact that all income kinds decreased year on year in Q2.

VCB reported pre-tax profits of nearly VND 20,835 billion, a slight 2% increase compared to the same period last year, maintaining its top position in the system, achieving nearly 50% of its annual target (VND 42,000 billion). VCB's total assets increased by 4% compared to the beginning of the year, reaching over VND 1.9 quadrillion. Despite an increase in substandard, doubtful, and potentially irrecoverable loans, leading to a rise in the bad debt ratio to 1.2%, VCB is still considered one of the banks with the best asset quality, with one of the lowest bad debt ratios in the system. Additionally, its provision coverage ratio (LLR) remained among the highest, at 212% in Q2/2024 compared to 230% and 203% in 2023 and Q1/2024, respectively.

One significant statistic is that VCB's credit growth in the first half of 2024 was 7.7% (loan growth was 7.8%; corporate bonds fell by 1.8% compared to Q4/2023 and amounted for 0.7% of total credit debt). According to Vietcap, VCB's credit growth in 2024 might reach 12%. In reality, the banking system's growth returned in August, with robust growth expected in the fourth quarter. According to the State Bank of Vietnam's (SBV) credit limit  adjustment, VCB is one of the banks that has hit around 80% of its lending limit .

Furthermore, the SBV gave VCB a higher maximum credit ceiling of 15.93%. KBSV forecasts that if the entire "room" is used, VCB's credit debt will reach VND 1.48 quadrillion by the end of 2024, with bad debt projected to be kept under 1.5%. As a result, the bank still has enormous opportunity to boost its loan limit , record profits, add more protections, and minimize bad debt.

According to the system's data, VCB is one of the banks leading in maintaining average interest rates at a low level within the industry. This caused the bank's customer deposits to decrease by 1.5% in the first half of 2024, but it did not affect its CASA ratio and capital. On the other hand, this has helped the bank promote lending more easily, as borrowing rates remain competitive and stable, supporting its expected credit growth goals.

Dividend distribution opportunities

In terms of business operations, VCB is generally regarded as having a positive outlook, though short-term profitability (around 1% for the Big 4 group) may be impacted by interest rate support programs, debt restructuring, and a potential decrease in net interest margin (NIM) as a result of maintaining low lending rates as policy.

Mirae Asset Research remains relatively optimistic about VCB’s outlook. "Although credit growth is slow and net interest income (NII) is flat, there is still room for improvement for the full year thanks to the low base in the second half of 2023. With a more positive macroeconomic outlook in the second half of 2024, international trade activities are expected to gradually recover, supporting better non-interest income for VCB. Additionally, VCB's provisioning pressure is not too significant, thanks to strong asset quality, reasonable interest rates, slow credit growth during difficult years, and relatively low real estate-related debt," Mirae Asset Research emphasized.

In terms of stock possibilities, VCB is now supported by positive news that benefits its mid-term share price. The bank plans to deliver dividends in the fourth quarter of 2024.

If all proceeds as planned, the VCB will submit a dividend distribution proposal for approval at the National Assembly session in October. The bank's approved dividend plans (pending National Assembly approval) include: (i) dividends from retained earnings accumulated between 2018 and 2021, totaling approximately VND 27.7 trillion (equivalent to a stock dividend of approximately 49.6%); (ii) dividends from 2022 profits, totaling approximately VND 21.6 trillion (equivalent to a stock dividend of approximately 38.7%); and (iii) dividends from 2023 profits, totaling approximately VND 24.987 trillion (equivalent to a stock dividend of approximately 44.7%).

Maybank Securities sets a target price for VCB shares at VND 99,000/share, a 7.6% increase from the recommended purchase price of VND 92,000/share, with a stop-loss price of VND 87,500/share (a 4.9% decrease). VCB’s stock is currently adjusting to the recommended purchase price (as of the October 7 session) after inevitable corrections following the uptrend established since early September.