CTD [UNDERPERFORM -13.8%] - Provision causes EBIT loss; core business improves

- We downgrade our rating for CTD to UNDERPERFORM from MARKET PERFORM despite raising our target price by 19% as the company’s share price has rallied 38% over the last three months.

- Our 19% higher target price is due to 1) increasing our 2022-2026F aggregate NPAT-MI by 23% as a result of a higher projected EBIT margin and signed contract value and 2) using 2022F core EPS (excluding provision expenses for doubtful receivables) in our P/E-derived target price. The impact of these factors is partially offset as we raise our WACC assumption due to our risk-free rate assumption increasing from 5.5% to 6.0%.

- CTD incurred a VND167bn (USD7.2mn) loss at the EBIT level in H1 2022 due to high net provision expenses of VND239bn (USD10.3mn). Excluding this provision, CTD’s core EBIT of VND73bn (USD3.1mn) tracked ahead of our previously 2022F negative EBIT due to gross margin expansion.