DBS Group - CIMB Research 2018-02-08: 4Q17 Raining Dividends, Hallelujah!

DBS Group - CIMB Research 2018-02-08: 4Q17 Raining Dividends, Hallelujah! DBS GROUP HOLDINGS LTD D05.SI

DBS Group - 4Q17 Raining Dividends, Hallelujah!

  • DBS Group's FY17 core net profit of S$4,390m (+4% y-o-y) was in line with consensus and our expectations, at 100% of our full-year forecast.
  • The narrative for the quarter was a declaration of final DPS of 60 Scts/share, bringing full-year DPS to 93 Scts (+55% y-o-y) as well as another special DPS of 50 Scts.
  • The record quarter was driven by higher NII, higher fees and lower net allowances.
  • For FY18F, we remain positive on DBS on rate-hike-tailwind, higher fee income, lower credit costs and increased returns to shareholders.
  • Reiterate ADD with a higher GGM-based Target Price. Downside risks could come from weaker NIM expansion and softer macros.



4Q17: Raining dividends, hallelujah! 

  • DBS Group's 4Q17 core net profit jumped 33% y-o-y to a quarterly record of S$1,218m, underpinned by higher NII (up 15% from higher assets under management [AUM] and loan volumes), higher fees (up 23% from broad-based growth) and lower net allowances. As a result, PPOP grew 9% y-o-y. 
  • The narrative for the quarter was the declaration of a final DPS of 60 Scts/share, bringing full-year DPS to 93 Scts (+55% y-o-y), as well as another special DPS of 50 Scts (right size of capital and to mark the 50th anniversary of DBS).


NII up on higher NIM and loan volumes 

  • NII increased 15% y-o-y to cross over S$2bn. NIM increased 5bp q-o-q/7bp y-o-y to 1.78%. FY17 NIM averaged 1.75% (FY16: 1.8%). With higher interest rates, we are modeling in FY18F NIM to increase by 8bp y-o-y to 1.83%. 
  • Gross loans grew 4% q-o-q or S$11bn (including S$2bn from consolidation of ANZ Taiwan), bringing 2017 loan growth to 11% (or S$33bn higher including S$8bn from ANZ). Underlying growth was due to corporates and SGP housing loans. We are modeling in a 7.6% loan growth for FY18F-19F.


Fee income down 7% q-o-q due to seasonally-slower WM 

  • Net fee income rose 23% y-o-y, though it was down 7% q-o-q due to seasonally-slower wealth management (WM) and loan-related fees. FY17 WM income/AUM rose 25%/24% yoy to S$2.1bn/S$206bn. Other non-NII fell 26% y-o-y due to a decline in trading income.
  • Expenses rose 11% y-o-y due to consolidation of ANZ and higher technology expenses. FY17 expenses grew just 3% y-o-y on productive gains. 
  • Cost-income ratio was stable at 43%; we expect a similar CIR for FY18F as DBS accelerates near-term tech investments.


Credit costs normalising 

  • Total allowances declined 51% y-o-y/72% q-o-q to S$225m as SP (specific provisions) normalised to 25bp of loans. No further charges were taken for O&G support services after the accelerated recognition of residual O&G exposures as NPAs in 3Q. 
  • New nonperforming assets declined q-o-q to S$362m, with NPL ratio stable at 1.7%. Given a benign credit environment, we assume 24bp credit costs for FY18F vs. through-the-cycle level of 27bp. 
  • Also, we note that S$85m would be transferred to RLAR (regulatory loss allowance reserves) come “Day One” to meet MAS’s 1% requirement.


Of capital and dividends 

  • DBS estimates that Basel final rules has limited capital impact – risk-weighted assets (RWA) is expected to only increase by c.5% by 2022. As such, other than the increased payout and special dividend, it has also suspended its scrip dividend with immediate effect. 
  • Post the 4Q17 payout, we estimate the fully-phased-in CET 1 to drop to 13% (4Q17: 13.9%), which we believe is still a very comfortable level for the bank. With earnings growth, we expect DPS of S$1.20 to be sustained (implied 4.5% yield).


Maintain ADD with higher GGM-based Target Price 

  • The various operational metrics (mortgage, cards, wealth, SME lending, cash management, trade) demonstrate broad-based growth for the group. For FY18F, we remain positive on DBS on rate-hike-tailwind, higher fee income, lower credit costs and increased returns to shareholders. 
  • Longer-term, we strongly agree with its digitalisation efforts. We increase our FY18-19F EPS by 4-4.1% on higher NII and fee income growth.
  • Accordingly, our GGM-based Target Price is also increased (to S$29.00) (implied 1.5x FY18F P/BV vs. 12.3% FY18F ROE or 11.6x FY19F P/E).




YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2018-02-08
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 29.00 Up 25.000



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