DBS GROUP HOLDINGS LTD
D05.SI
DBS Group - Manulife deal, decent trading help cushion
- 1Q net profit of S$1.2bn beat our estimate by 12% and consensus by 19%.
- Whereas peers faced topline challenges, DBS had bancassurance income growth to thank. That and a good trading quarter helped offset the decline in NII.
- Costs were controlled. PPOP was within expectations. Credit quality turned out to be better-than-expected and that contributed to a strong 1Q16 showing.
- Maintain Add. 1Q16 ROE of 11.9% looks sustainable. DBS is now our sector top pick.
- TP lowered to S$17.96 (1.05x CY16 P/BV) as we defer provisions to FY17-18.
Manulife deal, decent trading quarter help cushion fall in NII
- Main 1Q16 positives came from non-interest income (non-NII) and lower-than-expected loan allowances.
- Fee income was +3% yoy, +11% qoq, as new bancassurance fees helped bolster wealth management contributions and arrested the declines of trade fees, brokerage and IB.
- Trading-related income was also decent.
- Other income was -7% yoy (on lower trade clients’ hedging activity) but +46% qoq, from a seasonal low.
Net interest income -1% qoq
- A strong showing in non-NII helped cushion the 1.4% decline in NII.
- Loans were -3.2% qoq, partly currency effects (weak US$ and HK$). Underlying constant-currency loans (- 1% qoq) still shrank as a marginal rise in consumer, corporate loans failed to stem the decline in trade loans (-5% qoq).
- NIMs were up 1bp to 1.85% on higher customer yields.
- Margins were not affect by excess deposits, as deposits (-2% qoq) fell, mostly US$.
Costs were controlled, PPOP in line
- Expenses growth was controlled (+2% qoq). The bank’s operating jaws widened as the controlled expense combined with the stronger non-NII showing.
- 1Q cost ratio improved to 44%. Pre-provision operating profit (PPOP) (S$1.6bn, +14% qoq) was in line as strong non-NII and good cost control plastered away the negatives of falling NII.
Allowances less-than-expected; lower provisions engineer the beat
- Asset quality looks solid. Our impression over this results season is that credit quality concerns might be overblown for now; the bigger challenge is in revenue generation.
- NPL ratio edged up slightly to 1.0% (4Q: 0.9%).
- SPs (18bp of loans) were flat instead (vs. widespread expectations of higher provisions).
- There were also no GPs this quarter.
CET1 ratio improves, ROE of 11.9% better than peers
- As group loans fell on currency effects, 1Q16 RWA similarly declined 2% due to forex effect on loans. Lower RWA improved DBS’ fully phased-in CET1 to 13.2% (4Q: 12.4%).
- 1Q16 ROE was also a very decent 11.9%, much better than peers’ ~10% ROE. More fee income, less lending seems to deliver improvements in all the right metric.
Maintain Add; good results should spur price performance
- We maintain our Add call on DBS, with a slightly lowered target price of S$17.96 (GGM, 1.05x CY16 P/BV) as we tweak our EPS.
- We still fear that DBS has credit quality issues in 2017-18 from the oil and gas sector. But, current asset quality concerns on China and trade finance looks overblown for DBS.
- With all banks challenged at the topline, the delivery of record quarterly fee income looks to be a catalyst for outperformance.
Kenneth NG CFA
CIMB Securities
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Jessalynn CHEN
CIMB Securities
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http://research.itradecimb.com/
2016-05-04
CIMB Securities
SGX Stock
Analyst Report
17.96
Down
18.26
