SAI GON THUONG TIN JOINT STOCK COMMERCIAL BANK (STB) Price on 23/09/2011 Industry: Finnce & Bnking Trn Thi Thnh Tho Emil: Tho.TrnThiThnh @tls.vn Ticker: STB - Exchnge: HSX Recommend: HOLD Trget price 2011: VND 15,800 STATISTICS 14,200 VNĐ Listed since 12/7/2006 Outstnding shres 1,055,611,464 Floting shres 828,150,142 Mrket cp (billion VND) 14,884 52 week high (VND) 16,920 52 week low (VND) 11,089 10 dy verge volume 1,237,076 % price chnge 1 month 3.68 % price chnge 3 month 23.95 % price chnge 6 month 5.36 % price chnge 12 month -7.81 % foreign ownership 28.73% % foreign ownership limit 30% Bet (2Y) 0.74 Accumulted return of STB & HSX in 12 months 20.00% 15.00% 10.00% 5.00% 0.00% -5.00% -10.00% -15.00% -20.00% -25.00% -30.00% 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 Volume Vnindex STB FINANCIAL HIGHLIGHT (Bil VND) 2010 2011E 2012E Assets 152,387 177,386 204,010 Equity 14,018 15,579 17,189 NII 3,891 4,329 5,441 EAT 1,910 2,012 2,342 EPS (VND) 2,406 2,021 2,029 P/E (x) 6.3 7.9 7.9 P/B (x) 0.9 1.1 1.2 NPL rtio 0.56% 1.00% 1.20% Lons/Assets 54% 54% 59% Ern.ssets/totl 84% 83% 87% ssets Dep. Growth 29% 15% 20% Lon Growth 38% 18% 25% NIM 3.0% 2.9% 3.1% ROA 1.5% 1.2% 1.2% ROE 24.1% 20.2% 20.3% Source: STB, TLS 0 Scombnk hs been developed s corporte with one prent bnk nd ten member compnies operting minly in retil bnking, securities nd rel estte. Ernings before tx in H1 2011 reched 1,470 billion, completing nerly 54% of the pln. With conservtive ssumptions, we forecst tht the STB s net income will rech bout VND 2,012 billion in 2011. STB s chrtered cpitl stys t VND10,739 billion. EPS my rech VND 2,020 in the end of this yer. Combining two methods of vlution of P / E nd P / B, with 50:50 rtio, we expect STB s trget price would be bout 15,800 VND, higher thn the current price t VND14,200. From tht, we recommend investors to Hold this stock. BUSINESS PROFILE Scombnk ws estblished in 1991 with the gol of becoming the leding retil bnk in Vietnm. Currently, min business ctivities include: mobiliztion nd lending, securities investment, pyment services, foreign currencies trding, crd services, etc. In 2010, STB s Net income chieved VND1,910 billion nd VND 5,056 billion in totl operting income. In which, net interest income (NII) ccounted for 77% of totl ernings. In September 2011, the chrter cpitl of STB reched VND 9,179 billion. UPDATE Business results in H1 2011: In the end of H1, STB s EBT stood t VND 1,470 billion, completing nerly 54% of trget profit for the whole yer. Net interest income in H1 reched VND 2,627 billion, incresed by 80% on YoY bsis. Lons to customer in the end of Q2 ttined VND 79,624 billion, climbed bout 5% over the sme figure in the beginning of this yer (excluding SBS lons). NII plyed the most importnt role, ccounted for 84% of totl operting income. Service fee ernings ccounted for 19%. Securities investment nd foreign exchnge trding lost VND151 billion nd VND6.9 billion. Incresing chrtered cpitl in 2011: STB crried out the rights issunce in August to rise chrtered cpitl from VND 9,179 billion to VND 10,739 billion. 137.7 billion Shres will be issued to existing shreholders nd 18,3 billion shres will be sold to STB s stffs. In August 2011, Drgon Cpitl sold out 61.1 billion STB s shres to orgniztions nd individuls relted to STB bord of shreholders. ANZ delyed their pln to reduce ownership proportion in STB. In June 2011, STB only owned 48.59% of SBS s ownership insted of 56.39% s before. SBS becme joint venture compny of STB. STB will crry out n IPO for 30% of Scombnk Lesing ownership this yer. INVESTMENT HIGHLIGHT Services fee income contributed lrge proportion of totl ernings, ccounted for over 23% during the period 2008-2010 nd 19% in H1 2011. Lower NPL thn other listed bnks: In the lst three yers, STB s NPL remined lower thn 1%. Net interest mrgin (NIM) ws higher thn other listed bnks: STB s Nim rose from 2.06% in 2008 to 3.24% in 2009 nd 3.57% in 2010 (just below CTG s NIM). In the end of Q1 2011, STB s NIM ws estimted t 4.16%. Brod network with both domestic nd overses offices: the number of offices for STB ws higher thn the sme figure of other bnks such s VCB, EIB, ACB nd only below CTG s. VALUATION Bsed on forecst of STB business result in 2011 nd performnce of the bnk in 2010 s well s in H1 2011, we used PE PB model nd estimte tht the stock price STB in the end 2011 would be bout VND15,800. Compring to current price t 14,200 VND per shre, we recommend investors to HOLD this stock. INVESTMENT RISKS Risk of mcroeconomic policies Risk of incresing operting costs. 1 TLS Vietnm: Level 6, Toserco Tower 273 Kim M, B Dinh, Hnoi, Vietnm Sles & Trding - Hnoi Sles & Trding - HCMC Nthn Nguyen E: Nthn.Nguyen@tls.vn
FINANCIAL HIGHLIGHT Unit: Billion VND INCOME STATEMENT 2010 2011F 2012F 2013F Growth (%) 2010 2011F 2012F 2013F Interest income 11,802 13,659 15,952 19,233 Growth of Deposit 29% 15% 20% 20% Interest expenses (7,911) (9,330) (10,511) (12,248) Growth of Lon 38% 18% 25% 25% NII 3,891 4,329 5,441 6,986 Growth in NPL 61% 111% 50% 46% Service fee income 1,436 1,637 1,883 2,165 Grth. Owners' equity 33% 11% 10% 11% Service chrge (293) (411) (534) (694) Grth. Totl ssets 46% 16% 15% 15% Net Service Inc 1,143 1,226 1,349 1,471 Grth of Interest income 69% 11% 26% 28% Net FX gin (502) (15) 2 2 Grth of Service inc 15% 14% 15% 15% Net gin securities 18 (135) (27) (5) Grth o cost 33% 35% 33% 33% Investment income (151) (3) 1 2 Grth of net income 14% 5% 16% 12% Other income 135 80 117 162 Per Shre Dt Income from JV 523 575 633 696 Bsic EPS 2,406 2,021 2,029 1,983 Admin & GE (2,178) (2,940) (3,910) (5,200) Dividend 15% 14% 14% 14% Profit (pre-provision) 2,878 3,117 3,604 4,112 BVPS 14,242 13,825 13,270 12,843 Provision (318) (434) (482) (602) Network Profit before txes 2,560 2,683 3,123 3,510 Brnch 366 388 411 436 Income tx expense (650) (671) (781) (877) Stff 8507 9017 9558 10132 Profit fter txes 1,910 2,012 2,342 2,632 Minority Profit (39) (39) (39) (39) Vlution Net profit 1,910 2,012 2,342 2,632 PE 6.3 7.9 7.9 8.0 BALANCE SHEET PB 0.9 1.1 1.2 1.2 Csh & equivlents 12,678 17,504 11,208 1,801 Blnce with SBV 3,619 4,504 5,405 6,486 Asset qulity / Cpitl Deposit of Bnks 21,210 23,060 26,521 30,600 CAR 9.97% 9.5% 9.5% 9.5% Trding Security 2,280 1,140 1,140 1,140 NPL rtio 0.56% 1.0% 1.2% 1.4% Derivtives 7 7 8 8 Prov./lon -1% -1% -1% -1% Lons to customers 81,664 96,359 120,448 150,561 LLR/NPL -178% -100% -83% -71% Provision for credit losses (821) (973) (1,217) (1,521) NPL/Equity 3% 6% 8% 11% Inv securities & Cp 21,525 22,602 23,732 24,918 contribution Property nd equipment 3,136 3,606 4,688 6,094 Blnce Sheet Gering Other long-term ssets 651 1,301 1,366 1,435 LDR 104% 107% 111% 116% Rel estte - - - - Lon to Asset 54% 54% 59% 64% Other ssets 5,618 7,303 9,494 12,342 Inv securities/assets 16% 13% 12% 11% Totl Assets 152,387 177,386 204,010 235,384 Deposit to totl funding 61% 59% 61% 63% Libilities nd pyble to SBV 4,820 5,784 6,941 8,329 Interbnk deposit/interbnk 72.7% 110.3% 110.3% 109.9% lon Deposits to bnks 15,410 25,426 29,240 33,626 Equity/totl sset 9% 9% 8% 8% Customer deposits 78,335 90,086 108,103 129,723 Erning sset/totl sset 84% 83% 87% 91% Derivtives - - - - Trust 2,103 2,208 2,318 2,434 Revenues, cost Debt securities issued 28,577 29,434 30,906 32,451 NIM 3.0% 2.9% 3.1% 3.3% Other libilities 8,447 8,869 9,313 9,779 NII/Totl income 77% 71% 72% 75% Totl Libilities 137,692 161,807 186,821 216,342 Fees/ Totl income 23% 20% 18% 16% Stockholders' equity 14,018 15,579 17,189 19,042 CIR -43% -49% -52% -56% Chrted cpitl 9,179 10,739 12,350 14,202 Provision chrge/lon -0.39% -0.45% -0.40% -0.40% Other Cpitl 1,752 1,752 1,752 1,752 Reserves 1,328 1,328 1,328 1,328 Return Rtio Retined erning 1,760 1,760 1,760 1,760 ROAA 1.5% 1.2% 1.2% 1.2% Minority interest ROEA 24.1% 20.2% 20.3% 19.8% 677 677 677 677 Totl libilities & equity SOURCE: TLS 152,387 177,386 204,010 235,384 2 TLS Vietnm: Level 6, Toserco Tower 273 Kim M, B Dinh, Hnoi, Vietnm Sles & Trding - Hnoi Sles & Trding - HCMC Nthn Nguyen E: Nthn.Nguyen@tls.vn
INVESTMENT HIGHLIGH Services fee income contributed lrge proportion of totl ernings Net interest income ws the min component in Scombnk s totl ernings, ccounted for bout 77% nd 84% of totl operting income in 2010 nd in H1 2011. However, service fee income lso contribute lrge proportion in STB nnul ernings with over 23% in the period 2008-2010 nd 19% in H1 2011. Qulity of service is highly reputed especilly in the ctivities of pyment, gurntees, foreign exchnge services, crd service. In 2010, service fee income stood t VND 1,142 billion, ccounted for 23% of totl operting ernings of STB, the highest level mong listed bnks. Therefore, service ctivities will become competitive dvntges for STB while credit growth is restrined due to infltion. In ddition, lrge network with 366 domestic offices in 45 cities nd reltionship with 311 foreign bnks in 81 countries helped Scombnk to provide high qulity services to customers. In mny yers, STB ws voted s the best Vietnmese commercil bnks for their services including interntionl pyment, foreign exchnge nd csh mngement. Income structure of Scombnk Income structure of bnks in 2010 100% 100% 80% 60% 40% 20% 10% 62% 8% 23% 47% 47% 25% 56% 23% 77% 19% 84% 80% 60% 40% 20% 15% 10% 13% 76% 82% 79% 9% 59% 7% 82% 23% 77% 12% 71% 0% -20% 2006 2007 2008 2009 2010 H12011 0% -20% ACB CTG EIB HBB SHB STB VCB NII Net Service Inc Net FX gin Net gin securities Investment income Other income Income from JV Net interest income Sevice fee income Net FX gin Net gin securities Investment income Other income Income from JV Source: STB Source: STB Lower NPL thn other listed bnks In recent yers, STB s credit growth remined high bout 70% in 2009, 38% in 2010 nd focused on SMEs or individul clients. However, thnks to good process of credit risk mngement, STB s NPL ws lwys much lower thn other listed bnks. In the lst three yers, NPL stood t below 1%, lower thn the trget t 2%. NPL in 2008 ws 0.62%, the lowest mong listed bnks. This incresed to 0.69% in 2009 but fell to 0.49% in 2010. In Q1 2011, lon to customer of STB reched VND 82,192 billion, rising 0.8% over the sme figure in the end of 2010. Credit growth rose very slightly becuse the lending interest rtes were high bout 20% to 22% per yer which restrined compnies from borrowing. STB s NPL in Q1 2011 remined low t 0.52% nd climbed to 0.97% in Q2, still being sfer thn the verge level of bnking sector t 2.5% in H1 2011. From tht, low NPL showed tht STB hs invested in high qulity ssets which ensured stble incomes for the 3 TLS Vietnm: Level 6, Toserco Tower 273 Kim M, B Dinh, Hnoi, Vietnm Sles & Trding - Hnoi Sles & Trding - HCMC Nthn Nguyen E: Nthn.Nguyen@tls.vn
bnk. However, lons in the second group went up shrply by 16 times from VND 30 billion in the end 2010 to VND 482 billion in Q2 2011 implied tht STB s credit risk is rising considerbly. 5.00% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% NPL of listed bnks 2008 2009 2010 ACB VCB CTG STB EIB SHB MB Net interest mrgin (NIM) ws higher thn other listed bnks The fct tht Scombnk NIM tended to go up rpidly showed tht credit ctivity hs been improved. NIM incresed from 2.06% in 2008 (nerly lowest mong listed bnks) to 3.24% in 2009 nd chieved 3.57% in 2010 (just lower thn CTG s one). In the end of Q1 2011, STB s NIM is estimted t 4.16%. NII of STB contins ernings from lons, bonds nd interbnk mrket ctivities. On the one hnd, STB s NIM ws improved in 2010 thnks to the SBV s loosen monetry policy since the end of Q2 2010 to push up credit growth. On the other hnd, STB offered flexible interest rte policy to mximize net interest income while mintining high growth rte of erning ssets round 48.5% in 2010 over the previous yer 2009. In 2011, lthough STB s credit growth ws low s result of the SBV s requirement, Scombnk with high reputtion ws still ble to widen the gp between mobiliztion nd lending interest rtes to chieve high NIM. Besides, the rtio of deposits from finncil institutions (FI) over lons to other FI ws lwys lower thn 100% (bout 73% in 2010, 18% in 2009). This showed tht STB plyed s lender rther thn borrower in the interbnk mrket. The income from interbnk ctivities ccounted for bout 14% of STB s NII. Bonds erning were stble nd do not hve gret impcts on the chnge of NIM. Asset structure of STB on 30/6/2011 1% 2% 9% 2% 5.00% NIM 15% 10% 4.00% 3.00% 56% 2.00% 1.00% Csh & equivlents Deposit of Bnks Derivtives Inv securities Property nd equipment Blnce with SBV Trding Security Lons to customers Cp contribution 0.00% 2007 2008 2009 2010 2011F ACB CTG EIB HBB SHB STB VCB 4 TLS Vietnm: Level 6, Toserco Tower 273 Kim M, B Dinh, Hnoi, Vietnm Sles & Trding - Hnoi Sles & Trding - HCMC Nthn Nguyen E: Nthn.Nguyen@tls.vn
Brod network with both domestic nd overses offices Scombnk continued to widen their network both inside nd outside Vietnm to lift the mrket shre. Currently, STB hs 363 domestic offices, one brnch in Los nd two offices in Cmbodi. In compred with similr size bnks, the number of STB s offices is just lower thn CTG s but higher thn VCB s, EIB s nd ACB s. Scombnk s offices re locted in 45 cities over the country, centrlizing on the middle nd Southern res. STB ws lso the leder bnk deploying potentil mrkets in Los nd Cmbodi to provide retil bnking services. Moreover, Scombnk lso mintins reltionship with over 311 bnks in 81 countries to support STB s globl pyment services. In 2011, more brnches will be estblished in H Tinh, Ninh Binh, Bc Ging. STB is completing procedures to mke brnches in Los nd Cmbodi become STB s subsidiry bnks. In 2020, STB will hve round 600 offices in Vietnm nd in Mlysi, Singpore, the US, Euro, Austrli nd ASEAN members. Number of brnches nd trnsction offices 2007 2008 2009 2010 VCB 205 271 321 357 ACB 111 192 237 293 STB 207 247 320 366 HBB 36 44 50 70 EIB 66 111 140 166 SHB 40 78 95 116 CTG 760 786 954 1099 FINANCIAL ANALYSIS EARNINGS, COST AND NET PROFIT STB net interest income in H1 2011 chieved VND 2,627 billion, rising bout 92% over the sme period lst yer nd ccounted for 84% of totl operting income. The proportion of NII seemed to increse in compred with previous yers (77% in 2010, 56% in 2009), implying tht STB depended more on credit ctivities. Moreover, credit growth of bnking sector which must be lower thn 20% this yer cusing lrger gp between borrowing nd lending interest rte, leding to higher NII for bnks in H1 2011. The proportion of NII in totl income for STB (84%) ws still much lower thn others such s CTG (85%), ACB (93%), nd EIB (90%). Non-interest income of Scombnk in the period 2008-2010 took lrge proportion of totl income, ccounted for 23% which ws the highest mong listed bnks. In H1 2011, non-interest ernings chieved VND 488 billion, decresed by 34% in compred with the sme period lst yer nd ccounted for 16% of totl income. Non-interest income fell becuse STB suffered loss of VND 151 billion in securities investments nd 7 billion in forex trding in H1. 5 TLS Vietnm: Level 6, Toserco Tower 273 Kim M, B Dinh, Hnoi, Vietnm Sles & Trding - Hnoi Sles & Trding - HCMC Nthn Nguyen E: Nthn.Nguyen@tls.vn
Income struture of STB Net Interest Income Growth of STB 4,500,000 120% 23% 16% 4,000,000 100% 53% 44% 53% 3,500,000 80% 3,000,000 60% 2,500,000 40% 77% Interest 84% 2,000,000 expenses 20% 1,500,000 56% 47% 47% Interest expenses of STB in H1 1,000,000 2011 reched VND 6,026 billion, incresed by 77% on 0% YoY bsis. In which, interest for deposits 500,000 ccounted for 77%, costs of libilities ccounted -20% for 14.5% nd the rest ws expenses - for debt securities issued. Interest expenses of -40% STB 2007 2008 2009 2010 went up H1 shrply 2011 becuse the lck of liquidity 2007 in bnks 2008 in the 2009 beginning 2010 of this H1 yer 2011 led STB nd others push up interest rtes (bout 18% per yer for high vlued deposits). Net interest income Non-interest income Net Interest Income NII growth, STB, STB 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 - Growth of Interest Expenses of STB 170% 127% 7,911 64% 6,014 6,027 4,835 2,231-20% 2007 2008 2009 2010 H1 2011 200% 150% 100% 50% 0% -50% Interest Expenses (Bil VND) IE growth, STB Operting costs Scombnk s operting costs kept growing drmticlly during the period 2006-2010 with the verge growth rte of 51%. In which, slries ccounted for 50% of totl costs. Operting expenses incresed shrply in 2008 (81%) nd 2009 (71%) becuse STB widened network strongly during this period. Since 2010, operting costs tended to slow down becuse the bnk lredy hd lrge number of offices nd stffs. In H1 2011, operting costs stood t VND 1,410 billion, climbing 42.8% in compred with the sme figure lst yer. 6 TLS Vietnm: Level 6, Toserco Tower 273 Kim M, B Dinh, Hnoi, Vietnm Sles & Trding - Hnoi Sles & Trding - HCMC Nthn Nguyen E: Nthn.Nguyen@tls.vn
2500 2000 1500 1000 500 0 Operting cost growth of STB 81% 71% 2178 1639 33% 1410 1270 741 29% 409 2006 2007 2008 2009 2010 H1 2011 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 Operting costs Operting costs growth, STB Profit Ernings before nd fter tx continued to increse in the period 2008 2010 with CAGR bout 32%, lower thn ACB s (37%), EIB s (34.6%) but higher thn CTG s (24%) nd VCB s (18%). In 2010, STB s EAT chieved VND 2,178 billion, rising by 33% over previous yer. In 2011, STB s trget EBT is 2,700 billion, incresing by 24% in compred with the sme figure in 2010. In H1 2011, the bnk reched 1,470 billion in EBT, completing 54% of trget. In the end of Q2 2011, STB s credit growth only ttined nerly 5%. Therefore, STB is likely to chieve EBT trget with such high credit room for the rest of this yer (15%). EBT growth of STB 3000 159% 2 2500 2000 1500 96% 2560 1.5 1 0.5 1000 500 0-30% 2175 1470 1582 18% 1110 611-43% 2006 2007 2008 2009 2010 H1 2011 0-0.5-1 EBT (Bil VND) EBT growth, STB ASSETS, EQUITY AND LIABILITIES ASSETS Totl ssets of STB in the period 2006-2011 incresed rpidly with CAGR bout 41.6%, much higher thn the sme figure of other bnks such s ACB (39%), CTG (24%), VCB (15%) nd lower thn EIB (51%). In the end of June 2011, totl ssets stood t VND 7 TLS Vietnm: Level 6, Toserco Tower 273 Kim M, B Dinh, Hnoi, Vietnm Sles & Trding - Hnoi Sles & Trding - HCMC Nthn Nguyen E: Nthn.Nguyen@tls.vn
141.1 billion, decresed by 7.6% over the end 2010. This ws becuse STB reduced the ownership percentge in SBS from 56.39% to 48.59%. SBS becme STB s joint venture compny so SBS s totl sset ws not counted in STB s blnce sheet since Q2 2011. If ignoring the impcts of this event, there ws lmost no chnge in totl sset of Scombnk in Q2 in compred with the end 2010. Lons to customer ccounted for 56% of totl ssets, securities investment took 15%, deposits to bnks were represented by 10% nd the rest ws other ssets. The proportion of lons to customer of Scombnk ws quite high mong listed bnks such s ACB (43.5%), EIB (47.8%), CTG (65%). This showed tht Scombnk s income depended strongly on credit ctivities. Lon to customer in 2010 reched VND 81.7 trillion, going up by 38% over the yer 2009 nd much high thn the bnking sector level t 27%. In Q2 2011, lons to customer of STB stood t 79.6 trillion, rising by 5% over the end of 2010 (excluding SBS s). Credit growth in H1 slowed down becuse of tightened monetry policy nd high interest rtes. However, CPI growth seemed to decelerte since August, showing positive signl for STB to reduce ouput interest rte nd to push up lending in Q3 nd Q4. Totl ssets nd lons to customer of STB 180000 160000 140000 120000 100000 80000 60000 40000 20000 0 2006 2007 2008 2009 2010 30/6/2011 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0-0.2 Totl ssets (Bil VND) Lon to customer Growth of Lon to customer, STB EQUITY AND LIABILITIES STB s equity kept incresing in 2006-2010 with CAGR t 49%. In the end of June 2011, STB s equity reched VND 13,500 billion. In 2011, STB rised chrtered cpitl from 9,179 billion to 10,739 billion, going up by 17% (15% for existing shreholders nd 2% for stffs). Additionl cpitl will be invested in fixed ssets (20.5%), open new subsidiries 51% nd 28.5% for other businesses. Equity of Scombnk 18000 16000 14000 12000 10000 8000 6000 4000 2000 0 2006 2007 2008 2009 2010 2011F 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 Equity Equity Growth, STB 8 TLS Vietnm: Level 6, Toserco Tower 273 Kim M, B Dinh, Hnoi, Vietnm Sles & Trding - Hnoi Sles & Trding - HCMC Nthn Nguyen E: Nthn.Nguyen@tls.vn
Libilities Totl libilities in 2006-2010 incresed shrply with growth rte bout 58,3% per yer. In H1 2011, deposits of customers ccounted for 59%, debt securities took 20%, deposits of other bnks took 13% of totl libilities. Deposit of customer in Q2 decresed by 3% over the end 2010 (excluding SBS) implied difficulties in mobiliztion from mrket one. Scombnk becme more ctive in the interbnk mrket becuse of high competition in mobiliztion from public. Deposit of bnks went up considerbly in 2010 s 4.6 times s it ws in 2009, ccounted for 11% of totl libilities, incresing liquidity nd profit for Scombnk. In 2011, deposits of bnks lso climbed by 35.4% in compred with the end of 2010. Besides, debt securities lso reched VND 28.6 trillion in 2010, incresing by 27% over previous yer nd ccounted for 21% of totl libilities. In which, most of debt securities were issued in foreign currencies. At tht time, STB might sell USD for VND to tke the best use of interest rte gp between those currencies due to the bet tht VND would pprecite ginst USD. Unfortuntely, VND deprecited in the end 2010 nd therefore STB suffered loss of VND 502 billion in forex trding. In H1 2011, debt securities ccounted for nerly 20% of totl libilities. Libility structure of STB in H1 2011 4% 2% Libilities nd pyble to SBV Deposits to bnks Customer deposits Trust Debt securities issued Other libilities 2% 20% 59% 13% Source: STB STB's Libilities Libilities nd pyble to SBV Deposits to bnks Customer deposits Trust Growth of Customer deposits 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 180% 160% 140% 120% 100% 80% 60% 40% 20% 0% - 2006 2007 2008 2009 2010 H1 2011-20%, STB 9 TLS Vietnm: Level 6, Toserco Tower 273 Kim M, B Dinh, Hnoi, Vietnm Sles & Trding - Hnoi Sles & Trding - HCMC Nthn Nguyen E: Nthn.Nguyen@tls.vn
OTHER RATIOS CAPITAL ADEQUACY RATIO (CAR) Scombnk s CAR remined higher thn minimum CAR required by the SBV (9%) in mny yers (2010: 9.97%; 2009: 11.41%; 2008: 12.16%; 2007: 11.07%). This showed tht STB hd stble source of cpitl to fce with credit risk, mrket risk nd opertionl risk. However, STB s CAR ws rnked in the middle mong listed bnks, lower thn Bsel II level (12%) nd Pcific Asi region s level (13.1%). CAR 2010 CAR of Scombnk 17.80% 13.80% 12.30% 10.60% 9.97% 9.00% 8.00% 11.82% 11.07% 12.16% 11.41% 9.97% CTG EIB ACB SHB VCB HBB STB 2006 2007 2008 2009 2010 Source: STB ASSET QUALITY Credit Source: STB STB's lon by mturity in 2010 20% 17% Short term Long term 63% Medium term Being retil bnk, Scombnk mostly provided lons to SMEs nd privte compnies which ccounted for 54% nd 36% of totl credit. The bnk lso diversified porpolio by offering different services for diverse type of customers in vrious industries such s: mnufcturing & processing (33%), trding (14%), griculture (11%), services (9%) nd others. In terms of mturity, short term lons still ccounted for the lrgest proportion of credit but slightly fell (65% in 2009, 63% in 2010, 61% in Q2 2011). In 2010, the rtio of short term deposits used to finnce medium nd long term lons of STB ws 23.54%, lower thn llowed level t 30%. Lon to deposit rtio went up slightly from 78% in 2008 to 97% in 2009 nd 104% in 2010. In Q2 2011, LDR ws nerly unchnged, implying tht STB used other sources such s from interbnk, trust nd debt securities besides deposits to finnce lons. The fct tht STB s NPL remined below 1% in the lst three yers represented the efficiency of credit mngement process in Scombnk. 36% Lons by type of compny 3% Stte owned firms Joint stock firms Privte compnies 17% Lons by industries of STB in 2010 14% 11% Trding Agriculture nd forestry Mnufcturing nd processing Construction 1% 6% 54% Foreign compnies Individuls 9% 7% 33% Individul nd community services Wrehousing, trnsporttion nd communiction Trining nd eduction Source: STB Source: STB 10 TLS Vietnm: Level 6, Toserco Tower 273 Kim M, B Dinh, Hnoi, Vietnm Sles & Trding - Hnoi Sles & Trding - HCMC Nthn Nguyen E: Nthn.Nguyen@tls.vn
Investments Scombnk invested in debt securities, stocks nd subsidiries or joint venture compnies. Most of securities investment ws VGBs, bonds of other credit institutions nd corportes (ccounted for 98.4%) to ensure liquidity for the bnk. Securities which were vilble for sle ccounted for only 1%. In Q2 2011, investment securities stood t VND 21.5 trillion, incresing slightly by 1.7% over the end 2010 becuse lrge number of VGBs were bought in Q2. Although bond yield of VGBs ws much lower thn OMO rte nd rediscounted rte, STB still ccumulted more VGBs due to expecttion tht interest rte would decrese in Q4. 43% ROAA, ROEA of STB 20.0% 28.3% 24.1% 3.1% 1.4% 1.9% 1.5% 2007 2008 2009 2010 ROAA ROEA ROE, ROA ROAA of Scombnk fell from 1.9% in 2009 to 1.5% in 2010. ROAE lso declined shrply from 28.3% to 24.1%. One reson ws tht STB s EAT growth in 2010 ttined only 14% while totl ssets incresed by 46% nd chrtered cpitl went up by 37%. Thus, the bnk s performnce in 2010 ws not comptible with the growth of bnk s size. LIQUIDITY LDR rtio of STB went up quickly from 75% in 2008 to 98% in 2009, 104% in 2010, nd 106% in Q2 2011. The increse in LDR showed tht STB depended more nd more on mobiliztion in mrket 1 to finnce lons. This lso mens tht the bnk s liquidity is wekening becuse there exists fiercer competition mong bnks to mobilize in mrket one. The rtio of short term libilities over short term ssets climbing from round 1.17 in 2010 to 1.2 in Q2 2011 showed tht more short term fund ws used to finnce long term lons. Menwhile, STB s liquidity seemed to be worse. Deposits to bnks/deposits of bnks since 2006 to Q1 2011 were ll bove 100% (2010: 138%, 2009: 555%, nd 2008: 157%). This mens tht STB ws net lender in the interbnk mrket. However, in Q2 2011, this rtio dropped to 65% becuse STB preferred mobilize low cost fund in mrket 2 (interbnk interest rte bout 9%-11%) insted of high mobilizing interest rte up to 18% in mrket 1. 11 TLS Vietnm: Level 6, Toserco Tower 273 Kim M, B Dinh, Hnoi, Vietnm Sles & Trding - Hnoi Sles & Trding - HCMC Nthn Nguyen E: Nthn.Nguyen@tls.vn
LDR of STB Q2 2011 Q1 2011 2010 2009 2008 2007 2006 0% 100% 200% 300% 400% 500% 600% Deposit to bnks/deposit of bnks LDR VALUATION To vlue STB, we predicted STB s potentil price ssuming tht mcro environment will be more stble in H2 2011 thnks to regultions such s grdul loosen monetry policy, stbilizing foreign exchnge mrket, cesing requirement bout LDR t 80%. Those fctors will help bnks to be more ctive in their business. However, commercil bnks were still restrined by mximum credit growth t 20% nd other rules in Circulr No.13, 19, 22 of the SBV. As result, we ssume tht some finncil criteri of Scombnk increse by 15-20%. In subsequent yers, the verge growth rte will vry from 20% to 30%. Key ssumptions used in vlution model Mobiliztion growth In 2009, 2010, the growth of deposits of customers remined high round 31% nd 29%. These were quite higher thn the verge growth of bnking sector t 27%, proving STB s success in brodening network to increse mobiliztion mrket shre. However, in Q2 2011, deposits dropped by 3% over the end of 2010. Thus, bsed on rel business results nd the ssumptions of limited credit growth, STB s mobiliztion growth rte is ssumed t 15% in 2011 nd 20% in coming yers. Credit growth ssumptions According to resolution No. 11/NQ-CP on 24 Feb 2011, bnking sector must reduce credit growth to below 20%, declined M2 to 15-16% (insted of 21-24% s Stte Bnk nnounced lte lst yer) to curve infltion. Furthermore, STB s credit growth in H1 2011 only chieved bout 5%. From tht, we ssume Scombnk s credit growth rte t 18% this yer. Service fee income growth Considering the instbility in domestic economy nd globl finnce, the pyment services, money trnsfer, bnk gurntee, etc. of domestic bnks my be ffected. Thus, we believe 12 TLS Vietnm: Level 6, Toserco Tower 273 Kim M, B Dinh, Hnoi, Vietnm Sles & Trding - Hnoi Sles & Trding - HCMC Nthn Nguyen E: Nthn.Nguyen@tls.vn
tht services income growth in 2011 will be lower thn the sme figure in previous yer, ssuming t 14%. Securities investment forecst In 2010, STB lost totl VND 152 billion in securities investments. In 2011, STB continued to suffer loss of 151 billion for securities. This re is ffected strongly by mcroeconomic fctors plus the voltility of the mrket nd it is difficult to forecst. Therefore, we predict tht this ctivity continues to ber loss in 2011. FOREX ctivities In 2010, STB lost VND 502 billion in forex ctivities. However, we expect tht efficient regultions on foreign exchnge mrket will keep foreign exchnge mrket stble nd push up STB s forex income. Therefore, we forecst tht loss of this ctivity will decrese by 97% over the end 2010. Business results: With the bove ssumptions, we forecst tht STB my rech VND 2,683 billion in EBT (equl to 99% of the bnk s trget t 2,700 billion) nd therefore EAT my rech 2,012 billion. EPS forecst STB s chrtered cpitl will rise from VND 9,179 billion to 10,739 billion in 2011. Thus, djusted EPS would be pproximtely VND 2,020 nd BVPS t the end of this yer is determined t VND 13,824. Vlution Ticker Outstnding Price PE PB Shre @18/9/2011 VCB 1,969,804,514 26,400 10.1 1.97 CTG 1,685,810,134 25,300 12.0 2.3 EIB 1,056,006,875 15,600 7.52 1.30 ACB 937,669,470 21,800 7.25 1.53 SHB 481,579,547 7,900 6.68 0.78 HBB 405,000,000 7,400 6.00 0.78 Averge 8.26 1.44 s forecst We ssess STB stock price bsed on P/E nd P/B methods with verge dt of listed bnks t 8.26 nd 1.44. Becuse P/E of STB is lwys lower thn the industril figures, we use P/E t 7.5 to estimte STB stock price this yer. With forecsted EPS t VND 2,020 per shre, the price bsed on P/E method is nerly VND 15,000. STB's book vlue per shre clculted in 2011 will be round VND 13,824. We pply the P/B t 1.2 this yer to ssess STB price with n ssumption tht Vietnmese economy nd 13 TLS Vietnm: Level 6, Toserco Tower 273 Kim M, B Dinh, Hnoi, Vietnm Sles & Trding - Hnoi Sles & Trding - HCMC Nthn Nguyen E: Nthn.Nguyen@tls.vn
the stocks mrket in generl will be improved. Therefore, the STB vlue bsed on P/B pproch would be bout VND 16,500. Combining two methods of vlution ssuming proportion 50/50 for ech, we predict tht the stock price of STB in 2011 my sty round VND 15,800. With the current price t VND 14,200, we recommend investors to HOLD the stock STB. INVESTMENT RISKS MACROECONOMICS RISKS Since the beginning of this yer, the SBV implemented tightened monetry policy such s limited credit growth t 20% nd M2 bout 15% to 16%. Becuse net interest income often plys the most importnt role in totl ernings of commercil bnks, restrined credit growth will reduce net interest income of bnks nd therefore net income will be dropped. Additionlly, tight monetry policy lso decresed liquidity in bnking system, cusing interest rte rcing mong bnks. Lending interest rte which remined high bout 21-24% per yer during H1 2011 resulted in the stuck in disbursement of bnks cpitl. Moreover, high interest rte lso incresed credit risk for bnks becuse enterprises re not ble to py bck in time. Besides, rules in Circulr No. 13, 19 will continue to hve impcts on bnks performnce in coming time. Thus, it will be difficult for bnks to stisfy these rules while ensuring their trget profit. RISK OF INCREASING OPERATING COSTS Scombnk s operting cost kept climbing during 2006-2011 with the CAGR bout 51%. The cost growth of STB ws much higher thn other bnks such s CTG (35%) nd ACB (47%). Cost to income rtio of Scombnk tended to rise from 40% in 2009 to 43% in 2010 nd bout 45% in H1 2011. As result, operting cost which is likely to keep going up cn negtively ffect Scombnk s ernings in coming yers. 14 TLS Vietnm: Level 6, Toserco Tower 273 Kim M, B Dinh, Hnoi, Vietnm Sles & Trding - Hnoi Sles & Trding - HCMC Nthn Nguyen E: Nthn.Nguyen@tls.vn
BUSINESS MODEL Estblishment nd Development Scombnk ws estblished in 1991 with VND 3 billion in chrtered cpitl. After 20 yers, STB s chrtered cpitl reched VND 9,179 billion, being the first listed bnk nd being the first Vietnmese bnk operting s corporte with one prent bnk nd 10 subsidiries. In the end 2010, STB hs 366 offices including 68 brnches, 296 trnsction offices, 2 brnches in Los nd Cmbodi. Business structure Source: STB Subsidiries No. Compny STB s ownership 1 Scombnk-SBA 100% 2 Scombnk-SBL 100% 3 Scombnk-SBR 100% 4 Scombnk-SBJ 100% 5 Scombnk-SBJ Cmbodi 99.98% 6 STB Tech 100% 15 TLS Vietnm: Level 6, Toserco Tower 273 Kim M, B Dinh, Hnoi, Vietnm Sles & Trding - Hnoi Sles & Trding - HCMC Nthn Nguyen E: Nthn.Nguyen@tls.vn
Joint venture compnies No. Compny STB s ownership 1 Scombnk-SBS 48.95% 2 ScomInvest 19.58% 3 Scombnk-SBS Cmbodi 48.94% 4 Scombnk-SBS Los 24.72% Min businesses of Scombnk Mobiliztion Mobiliztion growth rte of STB ws high nd stble thnks to lrge network of 366 offices cross the country nd high reputtion. In 2010, totl mobiliztion chieved VND 129.2 trillion, incresing by 41.7% over the yer 2009. In which, lons to customer in 2010 ccounted for 57% of totl mobiliztion, climbing 29% over previous yer nd being higher thn bnking sector s growth rte (27%). In 2010, Scombnk ccounted for 3.94% of mrket shre. Mrket shre for mobiliztion of bnks in 2010 10.35% 2.92% 5.37% 3.94% 65.03% 10.29% 1.29% 0.81% CTG EIB ACB STB VCB SHB HBB Others Credit STB s credit growth remined high during 2007-2010 with CAGR pproximtely 78.7%. Prticulrly, credit incresed rpidly since the end of Q2 2010 when the SBV implemented loosen monetry policy to push up credits. In 2010, STB s credit reched VND 81.6 trillion, rising by 38% over the yer 2009. STB ccounted for 4.26% of totl lon mrket shre lst yer. In Q2 2011, lons to customer incresed slightly by 5% over the end 2010 becuse of high interest rte nd due to rules bout limiting credit growth t 20% of the SBV. Service fee income nd forex income Globl pyment services kept incresing regrdless difficulties of import - export firms in 2010. Totl interntionl pyment ernings of STB reched USD 5,726 billion in 2010, climbing 37% over the sme figure in 2009. 16 TLS Vietnm: Level 6, Toserco Tower 273 Kim M, B Dinh, Hnoi, Vietnm Sles & Trding - Hnoi Sles & Trding - HCMC Nthn Nguyen E: Nthn.Nguyen@tls.vn
STB issued 280 thousnd crds in 2010, rising by 94% over 2009. STB lso set up new 65 ATM nd 1,490 EFPOS mchines. In Forex trding, STB minly stisfy the demnd of customer for globl pyment but STB itself lso trdes foreign currencies to get profit bsed on chnges in forex rtes. In Q2 2011, STB ttined VND 111 billion in forex income. In H1 2011, forex income reched VND 43.4 billion becuse of loss in Q1. In 2010, Scombnk ws voted s the best Vietnmese bnk for its forex services nd the best Vietnmese bnk for csh mngement services. Investment Scombnk invested in debt securities, stocks nd subsidiries or joint venture compnies. Most of securities investment ws VGBs, bonds of other credit institutions nd corporte bonds (ccounted for 98.4%) to ensure liquidity for the bnk. Securities which were vilble for sle ccounted for only 1%. In Q2 2011, investment securities stood t VND 21.5 trillion, incresing slightly by 1.7% over the end 2010 becuse lrge number of VGBs were bought in Q2. Although bond yield of VGBs ws much lower thn OMO rte nd rediscounted rte, STB still ccumulted more VGBs due to expecttion tht interest rte would decrese in Q4. 17 TLS Vietnm: Level 6, Toserco Tower 273 Kim M, B Dinh, Hnoi, Vietnm Sles & Trding - Hnoi Sles & Trding - HCMC Nthn Nguyen E: Nthn.Nguyen@tls.vn
ANALYST DECLARATION Conflicts of interest might exist s ThngLong Securities ( TLS ) nd its clients might hve stkes in the trget firm through investments nd/or dvisory services in the pst, t present or in the future. PRODUCT This product covers the ltest developments on the trget firm. Detils on the firm cn be obtined by contcting our nlyst(s) or the sles persons nmed bove. We thnk clients for comments nd feedbcks on our product. TLS publishes this product, but ll errors if ny re the uthors. Anlyst s opinion: BUY expected to gin more thn 15% compred to the price on report issue dte; SELL expected to drop more thn 15% compred to the price on report issue dte; HOLD expected to chnge between -15% to 15% compred to the price on report issue dte. TLS RESEARCH TEAM We offer economic nd equity reserch. The Economic Reserch Tem offers periodic reports on mcroeconomics, monetry policies nd fixed income mrkets. The Equity Reserch Tem offers reports on listed firms, privte equities nd sector reviews. TLS Reserch Tem lso offers regulr mrket commentries - The Investor Dily. THANGLONG SECURITIES (TLS) Estblished in 2000, TLS ws one of the first securities firms operting in Vietnm. TLS provides full rnge of services including brokerge, reserch nd investment dvisory, investment bnking nd cpitl mrkets underwriting. With 500 employees locted throughout n expnsive network of offices in Hnoi, Ho Chi Minh City, Hi Phong, D Nng nd other strtegic loctions, TLS is one of the best known securities firms in Vietnm. Our client bse consists of retil nd institutionl investors, finncil institutions nd corportions. As member of the MB Group, including MB Bnk, MB Lnd, MB Asset Mngement nd MB Cpitl, TLS is ble to leverge substntil humn, finncil nd technologicl resources to provide its clients with tilored products nd services tht few securities firms in Vietnm cn mtch. Since its estblishment, TLS hs become widely regrded throughout Vietnm s: A leding brokerge firm rnked No.1 in terms of brokerge mrket shre since 2009; A renowned reserch firm with tem of experienced nlysts tht provides mrket-leding reserch products nd commentries on equity mrkets nd the economy; nd A trusted provider of investment bnking services for corporte clients. OFFICES Hedqurter: Level 6, Toserco Tower, 273 Kim M, B Dinh District, Hnoi. Phone: +84 4 37262600. HCMC Office: Level 2, Petro Vietnm Tower, 1-5 Le Dun, District 1, Ho Chi Minh City. Phone: +84 8 39106411. Reserch Office: Level 4, Vinconex Tower, 34 Lng H, Dong D District, Hnoi. Phone: +84 4 44568668. E: reserch@tls.vn DISCLAIMER The views expressed in this report re those of the uthors nd not necessrily relted, by ny sense, to those of TLS. The expressions of opinions in this report re subject to chnges without notice. Authors hve bsed this document on informtion from sources they believe to be relible but which they hve not independently verified. Any recommendtions contined in this report re intended for generl/public investors to whom it is distributed. This report is not nd should not be construed s n offer or the solicittion of n offer to purchse or subscribe for ny investment. This report my not be further distributed in whole or in prt for ny purpose. No considertion hs been given to the prticulr investment objectives, finncil sitution or prticulr needs of ny recipient. Copyrights. TLS 2000-2010, ALL RIGHTS RESERVED. No prt of this publiction my be reproduced, stored in retrievl system, or trnsmitted, on ny form or by ny mens, electronic, mechnicl, photocopying recording, or otherwise, without the prior written permission of TLS. 18 TLS Vietnm: Level 6, Toserco Tower 273 Kim M, B Dinh, Hnoi, Vietnm Sles & Trding - Hnoi Sles & Trding - HCMC Nthn Nguyen E: Nthn.Nguyen@tls.vn