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STB [SELL] - Profit plunges as non-performing loans surge in 2016 – Downgrading to sell - Earnings Flash

Declining net interest income was the major driver for the 63.8% and 67.5% drops in STB’s 2016 PBT and NPAT, respectively. A sharp increase of reported NPL and VAMC bonds balance justified our view in our previous report that the bank had a large amount of unrecognized bad debt. Given the overwhelming NPL burdens, profit will be weighed by sizable provision expense in the coming years. Due to the poor outlook, we do not see any material changes to our valuation and target price.