DBS Group - OCBC Investment 2016-02-22: Lowering FV to S$17.50

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DBS GROUP HOLDINGS LTD D05.SI 

DBS Group - Lowering FV to S$17.50 

• Results surprised on the upside 
• Management is cautiously optimistic 
• BUY, but FV dropped to S$17.50 

Better than expected 4Q earnings 

• DBS reported 4Q15 earnings of S$1002m, +20% YoY and -6% QoQ, and better than a Bloomberg consensus of S$965m. 
• Full year earnings came in at S$4454m, up 10%. Net Interest Margin (NIM) improved from 1.71% in 4Q14 and 1.78% in 3Q15 to 1.84% in 4Q15. 
• Allowances rose 17% YoY and 39% QoQ to S$247m. NPL ratio was flat at 0.9% compared to 3Q15 and 4Q14. 
• A final dividend of 30 cents has been declared, bringing full year to 60 cents. Ex-dividend date is 5 May 2016. 

China portfolio came off, but exposure to O&G and commodities largely unchanged 

• Its exposure to China came off from S$43b in the previous quarter to S$37b by end-2015. Of this, trade loans accounted for 57% or S$21b (versus 60% in 3Q15). 
• For the non-trade portion, this is largely to top Chinese banks or state-owned enterprises. 
• Current NPL is at 0.6%. Total Oil & Gas exposure was unchanged from last quarter at S$22b. 
• Of this, the producers, traders, processors segment accounted for 59%, with the remaining S$9b from the support services portfolio. There is no NPL for the former, but NPL for the latter was at 1.3%. 
• Management shared that it has stress-tested the O&G portfolio at US$20 per barrel for oil and do not expect additional specific provisions in 2016. 
• On Commodities, total portfolio remained unchanged from last quarter at S$12b with NPL at 1.7%. 
• With the challenging business environment and near term market volatility, management is monitoring costs and new hires and is also circumspect of taking large market positions. 
• Management is expecting loans growth of 2-3% for this year. 

Trading at 2SDs below average; reiterate BUY 

• With the heavy selling since the start of the year, DBS' shares are currently trading at two standard deviations below 10-year average valuations. 
• At current book of 0.8x (versus regional average of 0.9x), we believe the share price has priced in most of the negatives. 
• We are projecting higher allowances in FY16 and using lowered regional peers’ valuations, our fair value estimate drops from S$21.35 to S$17.50. 
• Maintain BUY. 

Carey Wong OCBC Securities | http://www.ocbcresearch.com/ 2016-02-22

OCBC Securities Analyst Report BUY Maintain BUY 17.50 Down 21.35