DBS Group - OCBC Investment 2015-11-02: Better than expected 3Q, Cutting FV to S$21.35

DBS Group - OCBC Investment 2015-11-02: Better than expected 3Q, Cutting FV to S$21.35 DBS GROUP HOLDINGS LTD D05.SI 

DBS Group - CUTTING FV TO S$21.35 

 3Q was higher than expected 
 Market conditions are challenging 
 Cutting FV to S$21.35 

Better than expected 3Q 

  • DBS Group Holdings Ltd posted higher net profit of S$1066m (+6% YoY -5% QoQ), higher than consensus estimate of S$990m based on a Bloomberg poll. 
  • Net Interest Income rose 13% YoY and 4% QoQ to S$1813m – a record high. 
  • Net Interest Margin (NIM) improved 10bp from a year ago and 3bp from a quarter ago to 1.78% - a 4-year high. 
  • However, improvement in Net Interest Income was offset by declines in Non-interest Income, which fell 1% YoY and 5% QoQ to S$899m. 
  • Net Fee Income fell 11% from last quarter due to market volatility which affected its wealth management, investment banking and stockbroking income. 
  • Total allowances were up 30% from a quarter ago to S$178m. 
  • Commodities linked exposure of S$21b In view of the recent decline in commodities prices, management shared that total exposure amounted to S$21b or which the Oil & Gas sector accounted for S$9b. Of this, S$14b is to traders (O&G accounted for S$2b). 
  • Management sees no stress in its commodity loans book and is comfortable with its current exposure. 
  • In China, another area of softness, its exposure has come off about S$7b to S$43b, mainly due to the drop in trade loans. 
  • Of the non-trade loans, the bulk is to state-owned companies (S$6b). 

Expects NIM to remain stable; maintain BUY 

  • Management is expecting loans growth of 5% in 2015 and 6% in 2016. In addition, it expects margin to hold stable, and to be largely dependent on the rate hikes situation in the US. 
  • However, we have seen deterioration in market conditions in recent months and we expect this to result in slower corporate activities and higher impairment charges than our earlier estimates. This together with slower earlier projected topline growth, we have revised our FY16 net earnings estimates down from S$4665m to S$4475m, down 4.1%. 
  • In addition, recent market weakness has brought regional banks’ valuation down and using lowered 1.2x book now (versus 1.3x previously), this brings our fair value estimate down from S$23.20 to S$21.35. 
  • Maintain BUY.

Carey Wong OCBC Securities | http://www.ocbcresearch.com/ 2015-11-02
OCBC Securities Analyst Report BUY Maintain BUY 21.35 Down 23.20