DBS Group - Maybank Kim Eng 2015-11-03: Currency Impact

DBS Group - Maybank Kim Eng 2015-11-03: Currency Impact DBS GROUP HOLDINGS LTD D05.SI 

DBS Group - Currency Impact 

  • 3Q15 net profit beat on strong USD & HKD. Constantcurrency loans were down 1%; deposits up 1% QoQ. Reported total income up 0.8% QoQ, net profit down 4.6% QoQ. 
  • Regional consumer sentiment & business prospects remain downcast. USD/HKD strength lifted earnings this quarter but were mostly translational. Until economic indicators improve, we think it is too early to jump back into banks. 
  • With the best of the cycle over, maintain SELL at SGD16.05 TP (1.0x FY15 P/BV). Prefer UOB for sector exposure. 

What drove 3Q15? 

  • Headline 3Q15 results were robust, especially against 3Q14. 
  • NIMs expanded 3bps QoQ/10bps YoY to 1.78%, aided by repricing and a large pool of SGD CASA. 
  • Loans climbed 2% QoQ but were down 1% in constant currency. 
  • By business lines, pretax profit was down 18% QoQ for consumer and wealth management, 5% QoQ for institutional banking and 44% for treasury. 
  • “Others”, which includes corporate, capital and asset management, rose 143%, mitigating the above. 
  • Reported 3Q net profit of SGD1,066m (-5% QoQ) beat expectations on better-than-expected non-interest income, lower provisions and MI. 

Management positive, but too early to jump in 

  • We raise EPS by 2-8% for FY15-17 after adjusting for SGD weakness, higher total income and lower overheads. 
  • While Fed-rate hikes should augur well for DBS (refer to our 14 Oct report, The NIM Enigma) as DBS is sensitive to the repricing interval and management is expecting 5%/7-8% loan/topline growth and stable NIMs. 
  • We think NIM may be slightly dented by pressure from China and trade loans. 
  • We are also cautious as restructured NPAs went up 12% QoQ/9% YoY, with increases in the substandard category. 
  • Maintain SELL at SGD16.05 TP or 1.0x FY15 P/BV, close to 1SD below its mean since 2005.

Ng Li Hiang Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2015-11-03
Maybank Kim Eng SGX Stock Analyst Report SELL Maintain SELL 16.05 Up 15.90