STB Update – BUY

SAI GON THUONG TIN JOINT STOCK BANK (STB)

Q1/23 business results were weak

STB’s Q1/23 business results were quite similar to the weakening state of the economy and the banking industry. However, thanks to no longer having to write off accrued interests and reducing provision expenses for VAMC bonds, Q1/23’s PBT increased by 50% y/y. NIM reached 4.2%, down 29 basis points qoq due to rapid increase in deposit rates and decrease in CASA.

Asset quality of STB was well controlled despite the deterioration of the whole industry. As of the end of Q1/23, NPL ratio was at 1.19%, +21 bps q/q due to the overdue loans transfered from category 2. Category 2 loan ratio stood at 0.94%, -31 bps q/q.

Profit is expected to surge from 2024 after completing the restructuring plan

The progress of liquidation of collaterals has been slow due to their high value and the illiquidity situation in the economy. We expect STB will continue to use its profits from business to make provisions for the remaining VND5,800 billion of VAMC bonds from now until the end of 2023 to complete the restructuring plan.

We expect PBT in 2023 to reach VND10,612 billion, +67.4% y/y (plan: VND9,500 billion, +50% y/y). Profit in 2024 is forecasted to surge to VND20,006 billion (+88.5% y/y), equivalent to same size peers after the pressure to make provisions for the legacy assets is negligible.

Valuation and recommendation

STB is trading at a seemingly unattractive level with a trailing P/E and P/B of 10.3x and 1.3x, along with 2023’s forward P/E and P/B of 6.6x and 1.1x respectively. However, further forward looking, the valuation multiples will become appealing with 2024’s forward P/E and P/B of 3.4x and 0.8x when STB no longer has pressure to made provisions for the VAMC bonds.

We reiterate our BUY recommendation for STB with a target price of VND45,300/share. Our target price is equivalent to target P/E and target P/B of 6.7x and 1.5x respectively.