DBS Group - OCBC Investment 2016-08-15: TOOK A HIT FROM SWIBER

DBS Group - OCBC Investment 2016-08-15: TOOK A HIT FROM SWIBER DBS GROUP HOLDINGS LTD D05.SI

DBS Group - TOOK A HIT FROM SWIBER

  • Hurt by higher allowances.
  • NIM holding well.
  • Lower FV to S$16.68. 



2Q took a hit from Swiber 

  • DBS’s 2Q16 performance was hurt by the allowances for Swiber, which led to a more than doubling in allowances to S$366m in 2Q16.This led to a 6% YoY and 13% QoQ decline in net earnings to S$1051m. 
  • At the topline, the group managed to show both QoQ and YoY improvements for both its Net Interest Income as well as Non-interest Income, resulting in an 8% YoY and 2% QoQ jump in Total Income to S$2919m. 
  • NIM improved from 1.75% in 2Q15 and 1.85% in 1Q16 to 1.87% in 2Q16. In addition, the cost-income ratio also eased off to 44.0%, down from 45.1% in 2Q15 and 44.2% in 1Q16.
  • NPL went up and NPL ratio rose from 0.9% in 2Q15 and 1.0% in 1Q16 to 1.1% in 2Q16. The group has declared the same 30 cents interim dividend.


Guiding for better YoY NIM in 2016; mid-single digit loans growth 

  • Management expects some recovery from its S$721m exposure to Swiber. It has taken about S$400m of specific allowances, but management expects recovery to exceed S$320m. The cumulative general allowances reserve currently is S$2.95b. 
  • Of its total exposure of S$23b to the Oil & Gas sector, about S$7b is to the Support Services industry. Of this, five companies accounted for S$2.3b and one name has weakness, and another S$2.7b is to 90 names and 1/3 of the portfolio has weakness. 
  • Meanwhile, its commodities exposure grew S$3b from Dec 2015 to S$15b currently, but the bulk (or 83%) is short term loans. 
  • Management expects FY16 NIM to be higher than FY15’s 1.77% and mid-single digit loan growth in FY16. 
  • Management do not expect NPL ratio to exceed 1.4% this year.


Sharp price correction; BUY 

  • Following news of its exposure to Swiber, we mentioned about price weakness and to re-enter the stock at S$15.00 or lower. Since then, DBS has shed 9% to as low as S$14.81. We believe this has captured the expected increase in allowances. 
  • We have also adjusted our FY16 earnings from S$4447m to S$4221m, largely to account for higher allowances. 
  • Based on 1x FY16 book, we lowered our fair value estimate from S$17.50 to S$16.68. At current price, dividend yield is 3.9%. 
  • Maintain BUY.




Carey Wong OCBC Investment | http://www.ocbcresearch.com/ 2016-08-15
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 16.68 Down 17.500


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