STB VN_Turnaround continues to progress

Buy

TP upside (downside) +34%

STB reported 9M19 preliminary adjusted operating revenue (excluding “other income”) of VND10 tn, up 31% YoY. Net interest income was VND2.9 tn in 3Q19 (up 45% QoQ and 41% YoY) and VND7.4 tn in 9M19 (up 34% YoY).

Credit growth reached 13% YTD, higher than the initial quota of 7% at the beginning of the year. We thus believe that the SBV has granted an increased credit quota to STB. Though the bank has not disclosed an exact number, we expect 15%-16% credit growth in 2019, which will help boost interest income in 4Q19 and beyond.

Strong fee income. Fee income was VND747 bn in 3Q19 (up 1% QoQ and 19% YoY) and VND2.1 tn in the first 9M (up 21% YoY). Bancassurance income contributed 13% to the total YTD fees. Although this is down from the segment’s 22% fee contribution in 2018A, we remain bullish on bancassurance and believe that the comps are skewed by one-off exclusivity fees collected last year.

PBT reached VND1.0 tn in 3Q19 (up 158% QoQ and 223% YoY) and VND2.5 tn in 9M19 (up 90% YoY), completing 94% of the bank’s full-year target and 80% of our forecast.

Balance sheet repair appears to be on track. Other income, which we believe is mostly NPL recoveries, reached VND115 bn in 3Q19 (down 73% QoQ, but up 25% YoY) and VND845 bn in 9M19 (up 176% YoY). This indicates some slowing of non-performing asset restructuring (e.g., sales) in 3Q19. But such recoveries are typically lumpy by nature, and the YTD number is still very strong in our view.

Asset quality has continued to improve. We have yet to see the full breakdown of NPAs, but preliminary category 3-5 NPLs decreased from 2.20% in 2018A to 1.96% in 3Q19, which is a positive indicator.

We reiterate BUY on STB, which we see as a turnaround play given its strong core operational performance amidst legacy bad asset restructuring. The Street appears to have ignored the positive operational trends, but we think the share price will eventually rerate. We suggest that investors consider a barbell approach with VCB as a core holding and to STB for the potential rerating.

For the complete report, please access here: STB_3Q19 Update_08.10.2019

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