STB Update – BUY

SAI GON THUONG TIN COMMERCIAL JS BANK

We lower our target price to VND36,200/share due to STB’s core operating profit being lower than expected but maintain our BUY recommendation. Our target price is equivalent to 12-month forward P/E and P/B of 5.6x and 1.1x, respectively. However, the above target price does not include potential profits from liquidating the collateral of 32.5% of STB shares. In case the bank auctions successfully, the value of STB may increase by VND11,000/share, assuming the bank fully recovers the principals and interests of the loan secured by the above STB shares.

Q1/24 business results recovered slowly due to high interest rate deposits not yet fully matured. Specifically, NIM Q1/24 reached 3.85%, +8 bps q/q but -50 bps y/y. Although the listed deposit rate is about 1% lower than the low level during Covid-19 period, STB’s mobilization cost in Q1/24 is 1% higher than that period’s level, implying that many deposits have not yet fully matured and the room to reduce cost of funds is still quite significant.

However, we forecast that NIM for the whole year 2024 is only equivalent to Q1/24 because lending rates are also falling sharply and credit demand has not recovered strongly. We forecast credit growth for the whole year of 2024 to reach 14% and net interest income for the whole year 2024 to grow 12.1% y/y.

Income from services is forecast to recover slowly of 5% y/y because the banca segment will continue to face difficulties, while income from payments is expected to improve, along with forex income forecast to grow 14% y/y.

Provision costs are forecast to decrease by 16% in 2024 to VND3,100 billion with the assumption that provision costs for normal NPLs increases by 36% y/y due to risk of potential NPL is still high, however, STB no longer has to make provisions for VAMC bonds as in last year.

STB is expected to receive 40% payment of Phong Phu Industrial Park loan in 2024 and the remaining 40% in 2025, equivalent to VND3,174 billion each year, plus deferred payment interest income. As STB has made 100% provision for VAMC bonds, we expect STB to record reversed provisions or off-balance sheet loan recoveries in case STB has written off this loan, thereby positively impacting 2024’s business results.

PBT in 2024 is forecast to reach VND15,716 billion, an increase of 63.8% y/y.