STB_Company Update_Stretched valuation

Stretched valuation, downgrade to SELL

TP upside (downside) -12%
Close 09 Sep 2021
Price                          VND 27,350
12M Target              VND 24,000
Previous Target      VND 16,790

We now assume that STB will resolve all legacy assets by 2023E, so loan growth could outperform the sector thereafter – but this is a long way off. Our 2021E loan growth forecast remains 13% YoY.

We expect NIM to be supported by the resolution of legacy assets, as the capital freed up is shifted into interest-earning assets. We reduce our 2021E NIM forecast to 2.95% (+21bps YoY but 21bp lower than our previous forecast), largely due to reduced yields for Covid-impacted clients. However, we expect NIM to recover and to reach 3.66% in 2024E after STB has cleared all of its legacy assets.

We assume STB will strengthen its provisioning as it accelerates its restructuring process. We increase our 2021E provisioning forecast by 6% to VND3.8 tn (+24% YoY). However, provisioning should drop by -51% YoY in 2024E, after the legacy assets are resolved.

We slash our PATMI forecasts down by -10% for 2021E and -9% for 2022E on tightened NIM and higher credit costs. Our decreased PATMI forecasts are -12% below the Consensus mean for 2022E, but still represent growth of +24% YoY in 2022E.

Turnaround story remains intact but the valuation has priced in too much optimism. STB trades at 1.5x vs. sector’s median of 1.8x, which is not cheap given its low adjusted 2021E ROE of 9% vs the sector’s 21%. We increase our target price to VND24,000 given the expected strong recovery in 2024E. However, the investment thesis depends on STB’s specific restructuring of legacy assets, which has become more uncertain due to the pandemic. Thus, we downgrade to SELL. The greatest upside risk for the stock is probably the continuation of M&A chatter (and although we are skeptical, we can’t rule out an actual deal).

For the complete report, please access here: STB_Company Update_Sep 2021

Analyst: Tanh Tran, tanh.tran@yuanta.com.vn