STB_Legacy NPA recoveries are on track

BUY

Current price (04-26-19): VND 11,950

Target price: VND 14,049

Upside:  17.6%

Summary: We attended STB’s AGM on April 26^th. The key takeaway from the meeting is the positive progress on resolving legacy non-performing assets (NPAs). We are also impressed by the continuing turnaround in the underlying business, as outlined in our report 23 of April titled “STB_1Q19 results boslter confidence”. Legacy asset recoveries and robust business results support our confidence in STB, and we reiterate our BUY rating.

Restructuring of legacy NPAs continues. STB resolved VND12 tn of legacy assets in 2018 vs its initial target of VND 15 tn. This was down from VND 19 tn in 2017 (initial target: VND 20 tn). STB said it plans to restructure another VND 10 tn in NPAs (including VND2-4 tn of accrued interest) in 2019. Given that VND 5 tn of NPAs was resolved in 1Q19, we believe that STB should be able to fulfill their full-year target.

NPAs = 20% of assets (and that’s a good thing). Net on-balance sheet NPLs, net VAMC bonds, accrued interest, and other receivables represent 20% of total assets as of 1Q19. This is obviously a very high number; but the trend has been persistently favorable since 2017A, when NPAs peaked at 27% of total assets (see figure 1). We believe that the 16% QoQ / 47% YoY jump in 1Q19 net interest income was due to 1Q19 recoveries as funds are freed up to support healthy (and therefore interest-earning) assets.

For the complete report, please access here: STB_AGM Takeaways_04 26 19