DBS GROUP HOLDINGS LTD
D05.SI
DBS GROUP HOLDINGS - Sanguine despite macro headwinds
- 4Q15 NPAT of S$1.bn rose 20% yoy driven by 13bps yoy expansion in NIMs.
- Net fee and commission income increased 6% yoy owing to increase in wealth management (9% yoy) and loan–related fees (10% yoy)
- NPL stable qoq at 90bps. 4Q15 NPA cover 148%, lower than 3Q15 NPA cover of 161% owing to larger NPL in “General commerce” segment of loan books (4Q15: 1.5% and 3Q15: 0.9%)
- Management remains sanguine even in face of weaker economic outlook
- Downgrade to "Accumulate” from Buy with a TP S$15.35, pegged at 0.95x FY16F PBR.
How do we view this?
Loan books growth lacklustre but deposits rise.
- Declines in general commerce loans (-8.8% qoq) and manufacturing loans (-4.3% qoq) have offset the continued growth in construction loans (+1.2% qoq) and housing loans (+3.0% qoq) so overall customer loans books declined by 0.7% qoq.
- USD loans declined by 2.9% qoq which we view as corollary to declining corporate loans owing to weak investment sentiment. Chinese yuan loans declined 15% qoq owing to declines in trade loans.
- Deposits rose 0.7% qoq. Fixed deposits declined 2.2% qoq while Current Account Savings Account (CASA) rose 3% qoq. We are pleasantly surprised that DBS had deftly managed the deposit mix even in an increasingly challenging environment - emphatic of DBS’ strength to shore up CASA compared to peers. As a result, LDR is lower in 4Q15 at 88.5% (3Q15: 89.7%).
Exposure to Oil and Gas loans is S$17bn making up 6% of loan books.
- Of the S$17bn, S$7bn are loans related to support services. NPL is 1.3% for this S$7bn valued at S$91mn. Management stress-tested the portfolio at oil price US$20 per barrel sees a potential for additional S$200mn in provisions in FY17/18. Barring extremely low oil price for extended period of time, management does not foresee additional specific allowances in FY16.
Exposure to Other Commodity loans is S$10bn making up 3.5% of loan books.
- NPL is 1.7% valued at S$170mn. Management see elevated stress within the coal, iron and steel segment but the situation is contained. Chinese trade loans reduced are not under any foreseeable threat.
- NPL for the Chinese exposure is 0.9% and are contributed mainly by an approximately S$1bn exposure to Chinese SMEs.
- Negative impact of RMB depreciation is negligible because the clients’ positions are hedged however a 10% to 20% depreciation of RMB in 1Q16 was to occur, a negative impact would be felt. But DBS has not budgeted for this tail risk event.
Investment Actions
- Reduce to "Accumulate” from Buy with a lower target price of S$15.35 (previously S$23.00, based on 1.35x PBR).
- Our new TP is based on 5% discount to FY16e book value, reflecting muted growth prospects in a challenging economic environment. But we view that DBS’ exceptional flexibility in managing its deposit mix because of its well-entrenched network in its marketplace as a very positive attribute underpinning its balance sheet if funding ever becomes constricted.
- Our new NPL formation assumes “worst case scenario” where NPL accelerates from current 0.9% to 1.3% for FY2016.
Jeremy Teong
Phillip Securities
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http://www.poems.com.sg/
2016-02-25
Phillip Securities
SGX Stock
Analyst Report
15.35
Down
23.00
