DBS Group - OCBC Investment 2016-05-03: 1Q Beats Expectations

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DBS GROUP HOLDINGS LTD D05.SI 

DBS Group - 1Q Beats Expectations

• Market beating 1Q
• Expecting loans growth of 2-3%
• Retain BUY

1Q of S$1.2b was way ahead of consensus

• DBS posted 1Q16 net earnings of S$1.2b, down 5% YoY and up 20% QoQ, and setting another quarterly record high. This is better than market expectations of S$1.04b. 
• Excluding one-off items in 1Q15, net earnings would have been up 6% YoY. This compares to S$766m for UOB and S$856m for OCBC. 
• Net Interest Income was up 8% YoY and down 1% QoQ to S$1.83m, while Non-interest Income was down 2% YoY and up 29% QoQ to S$1.03b (excluding one-off). 
• Net Interest Margin (NIM) improved from 1.69% in 1Q15 and 1.84% in 4Q15 to 1.85% in 1Q16. 
• Cost-to-income came off slightly from last quarter’s 46.8% to 44.2% this quarter. 
• Allowances also fell from S$181m in 1Q15 and S$247m in 4Q15 to S$170m this quarter.

Guiding for 2016 loans growth of 2-3% and 2016 NIM to be better YoY

• With a record set of 1Q results, management remained fairly optimistic about its outlook, as its liquidity and capital positions are still healthy. Despite the softer market conditions in 1Q, 
• Wealth Management fee grew both YoY and QoQ due to better contribution from Bancassurance Income which rose 63% YoY to S$98m and the outlook is improving in the current quarter. 
• Management shared that there was a gradual winding down of its China trade loans, down S$5b in 1Q, and expecting another S$3-5b drop in 2Q. 
• Management is guiding for 2-3% loans growth for this year. In terms of NIM, it expects full year’s NIM to be better than the 1.77% recorded in 2015. It is also watching its expenses, and 1Q16 cost-income ratio has already come off from 4Q15’s level. 
• Digital banking is a new area of focus, including the recent launch of digibank in India. Its Oil & Gas exposure remained flat for the quarter.

DBS remains as our top pick in the sector

• We have raised our FY16 estimates, largely due to lower allowances, from S$4266m to S$4448m. However, we are maintaining our valuation peg due to the still uncertain market conditions. 
• Overall, we are retaining our BUY rating and S$17.50 fair value estimate. At current price, yield is around 3.9%.

Carey Wong OCBC Securities | http://www.ocbcresearch.com/ 2016-05-03

OCBC Securities Analyst Report BUY Maintain BUY 17.50 Same 17.50