BUY

Current price (07-15-19): VND 11,400
Target price: VND 14,049
Upside: 23.2%

Event catalysts:

• Operational turnaround as legacy bad debt problems are resolved and underlying business continues to improve.
• Management’s real estate expertise underlines the NPL restructuring story.
• LDR is lower than peers and the regulatory cap, implying potential NIM outperformance vs the sector

Preliminary 1H19 PBT of VND1.5 tn (+51% YoY) completed 55% of STB’s 2019E target and 65% of our forecast. The implied 2Q19 PBT of VND500bn was down c.50% QoQ. We believe that much of the apparent QoQ lumpiness is due to recognition of loan loss recoveries. However, STB reported VND1.4 tn in 1H19 netfee income, up 23.5% YoY, indicating positive underlying momentum.

Asset quality continues to improve. STB handled VND11 tn of legacy assets during 1H19, exceeding the bank’s full-year target of VND10 tn. Audited 1H19 financial disclosures have not been released, but we estimate that total nonperforming assets decreased to VND73 tn (or 17% of total assets). Admittedly, this is a very high number, but the trend is your friend: NPAs peaked at 27% of assets in 2017A, before falling to 20% in 1Q19 and 17% in 2Q19E. STB’s reported NPL ratio decreased to 1.96% in 2Q19E from 2.11% in 2018A.

Our view: Positive NPL restructuring progress confirms our confidence in STB as a turnaround story as the bank works through its legacy NPAs. We reiterate our BUY rating (see our initiation for details) and recommend a barbell approach focused on VCB (BUY – for a quality core holding) and STB (for greater upside).

For the complete report, please access here: STB_1H19 results boost confidence in the turnaound story

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