DBS Group Holdings - Phillip Securities 2016-05-04: Staying nimble

DBS GROUP HOLDINGS LTD D05.SI

DBS GROUP HOLDINGS LTD - Staying nimble

1Q16 NPAT of S$1.23bn rose 20% yoy. NIM at 1.85% expanded by 16bps yoy (1Q15 NIMs at 1.69%).
Net fee and commission income increased 3% yoy owing to wealth management (5% yoy) and cards (12% yoy)
NPL inched up 9bps yoy to 1.97%. 1Q16 NPA cover 134%, lower than 4Q15 NPA cover of 148%.

Continued growth in construction loans (+6.8% yoy) and housing loans (+10.1% yoy) were offset by declines in the other loan segments across the portfolio.
Total customer loans books declined by 2.4% yoy. Trade loans continue to be weak along with the broader market weakness but supported by Singapore housing loans and Building and Construction loans.
Management noted that Hong Kong housing loans have slowed down and that leaves much of the heavy lifting to Singapore based housing loans.
Management has guided that Singapore housing loans will continue to be robust and be supported by refinancing but we are cautious on the reliance of housing loans to drive growth in the near term.

Fixed deposits declined 12.5% yoy while Current Account Savings Account (CASA) rose 3.3% yoy.
Lowering deposits is part of asset liability management to optimise the cost of funds and maintain NIM higher when total loan books decline.

As overall loans growth remain muted and low interest rates continue, NIM are likely to narrow in the 2nd half of FY16.
Competition may intensify amongst the banks to maintain non trade loans such as housing loans.
Overall NIM is guided to average 1.81% for FY2016.

Maintain “ACCUMULATE” with a higher target price of S$16.09 (previously S$15.35, based on 0.95x PBR).
DBS share price in the 1Q2016 performed in line our “ACCUMULATE” recommendation.
Our new TP is based on 5% discount to FY16e book value, reflecting muted growth prospects in a challenging economic environment. But we have raised our FY16 net profit estimates up by 62.8% on the back of higher net interest income from DBS’ ability to stretch the NIM and lower provisions expense.
Previously we had assumed a “worst case scenario” where NPL formation accelerates from 0.9% in FY2015 to 1.3% by the end of FY2016. We have revised this assumption to NPL of 1.0% by the end of FY2016.

Jeremy Teong Phillip Securities | http://www.poems.com.sg/ 2016-05-04

Phillip Securities SGX Stock Analyst Report ACCUMULATE Maintain ACCUMULATE 16.09 Up 15.35