DBS GROUP HOLDINGS LTD
D05.SI
DBS (DBS SP) - Anchored On Sound Fundamentals
- Reiterate BUY on DBS, with a SGD21.10 TP (28% upside).
- Its SGD34bn exposure to the broad commodities sector and SGD43bn China loan book remain in good shape, pointing to a manageable credit cost of 0 26bps for 2016F (2015F: 23bps).
- Underlying operations are steady with operating income forecasted to improve 7% YoY on decent 5% YoY loan growth, stable NIM and a 9% YoY rise in non-interest income.
- Its fully- loaded Common Equity Tier-1 ratio is at a comfortable 11.9%.
Steady growth in core operations.
- We expect DBS to improve its core net profit by 8% YoY to SGD4,638m in 2016 (2015F: +11%).
- Despite sluggish GDP growth, loans are projected to grow 5% YoY, with healthy demand in Singapore cushioning softer China trade loans.
- Non-interest income is forecasted to rise 9% YoY, led by the bank’s wealth management and treasury businesses.
Modest NIM expansion.
- We penciled in a modest 5bps rise in DBS’ net interest margin (NIM) for 2016F as the pace of increase in US rates would likely be slower than expected, while potential rate cuts in China would dampen some of the margin improvement.
- Still, continued efforts to manage funding costs would help.
Confident about asset quality.
- With no significant stress seen across its loans portfolio, management expects a moderate increase in non- performing loans (NPLs) and credit costs in 2016.
- Based on internal stress tests of the bank’s oil and gas (O&G) exposures, management estimates additional provisions would be less than SGD100m.
- It is confident its loan books would remain resilient, given the good quality of its commodities exposure.
Key risks that would impede DBS’ share price performance include:
- a sharper-than-expected slowdown in China and other major economies,
- a slower-than-expected pace of US rate normalisation, and
- a larger-than-expected increase in NPLs.
Reiterate BUY.
- DBS is our Top Pick among Singapore banks, given its smaller exposure to ASEAN and leverage to an expected rise in short term rates.
- Our GGM-derived TP of SGD21.10 is based on a 3-year forward ROE of 11.4%, cost of equity to 9.75% and long-term growth of 3.5%.
- Our TP implies a FY16F P/BV of 1.26x (historical mean: 1.15x; +1SD: 1.30x) and P/E of 11.1x (historical mean: 11.4x).
Singapore Research
RHB Invest
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http://www.rhbgroub.com/
2015-12-02
RHB Invest
SGX Stock
Analyst Report
21.10
Same
21.10
