STB_4Q results beat as NPL restructuring continues

BUY

Current price (01-21-19): VND 11,700

Target price: VND 14,049

Upside:  20.1%

Non-interest income was the key driver of the 4Q18A earnings beat. The details are unclear but we believe that the 582% QoQ and 317% YoY boost in “other income” was driven by NPL collateral sales (i.e., positive NPL handling). The Company reported VND1,608 bn in total 4Q18 non-interest income, up 83.7% QoQ and up 5.4% YoY.

Pre-provisioning operating profits increased 37% QoQ and 27% YoY, with PPOP ROA coming in at an annualized 1.33%, up 35bps QoQ and 17bps YoY. We view the PPOP improvement positively and see it as a better indicator of underlying operations than net profit for a bank that is in a restructuring period.

Asset quality improved, but risks remain. STB’s NPL ratio decreased to 2.11% at 4Q18 vs 4.67% at 4Q17. Category 3-5 NPLs declined by 47.8% YoY, of which Cat. 3 declined 86.9% YoY, Cat. 4 fell 50.3% yoY, and Cat. 5 fell 40.7% YoY. However, the bank’s overall credit risk remains high, with Category 5 NPLs accounting for 91% of total NPLs. Accrued interest assets (mostly NPLs) were down -6.4% YoY, while VAMC bonds (also NPLs) fell 11% YoY and 1.9% QoQ, to reach VND40,233 bn.

We reiterate our BUY rating as outlined in last week’s initiation report “A turnaround story for the long haul”. We believe that the 4% DoD gain on Jan 21 indicates that the market was pleasantly surprised by the 4Q18 results, and we think that a re-rating could result from the ongoing NPL restructuring and improving underlying operations as evidenced by the uptick in pre-provisioning operating profit. In our view, investors who wait until the restructuring is complete will miss the share price upside.

For the complete report, please see the link: STB_4Q18 results beat as NPL restructuring continues

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