DBS GROUP - OCBC Investment 2017-02-16: Single-Digit Growth

DBS GROUP - OCBC Investment 2017-02-16: Single-Digit Growth DBS GROUP HOLDINGS LTD D05.SI

DBS GROUP - Single-Digit Growth

  • Higher allowances in 4Q.
  • Guiding for single-digit growth.
  • Maintain HOLD.

4Q16 came in below expectations 

  • DBS Group Hldgs Ltd posted a 9% YoY or 15% QoQ drop in 4Q16 net earnings to S$913m, versus consensus of S$1,014m based on a Bloomberg poll. This led to a 5% drop in FY2016 earnings to S$4238m. 
  • This was mainly due to a sharp rise in provisions which rose 87% YoY or 6% QoQ to S$462m (full year of S$1434m versus S$743m in FY15). 
  • Net Interest Margin (NIM) eased off from 1.84% in 4Q15 and 1.77% in 3Q16 to 1.71% in 4Q16. 
  • NPL rose from 0.9% in 4Q15 and 1.3% in 3Q16 to 1.4% in 4Q16. 
  • Final dividend of 30 cents was declared, bringing full year to 60 cents (unchanged).

O&G support services remain challenging 

  • The outlook for the oil and gas sector remains challenging despite oil price staging a rebound from 2016 low. Of the S$7b exposure to the sector, about S$1.8b is to state-owned/ government-linked shipyards. 
  • From the balance of S$5.5b, a few names have moved to NPA, but management believes that sufficient provisions have been made. 
  • In addition, the recent divestment gains of S$350m from the sales of PWC Building will be set aside as general provisions (GP), increasing GP to S$3.52b. 
  • The group has also recovered about S$50m from Swiber .

Increase FV to S$18.99; maintain HOLD 

  • Management continues to look into its cost structure and deploying resources to technology-related area. 
  • It is also keen to explore tie-ups in Fintech, but shared that it is unlikely to look at major M&A this year as it integrates ANZ into its operation in 2017/18. 
  • It is also guiding for single-digit loans and income growth for 2017 and expects new NPA formation and specific provisions to be lower than in 2016. 
  • Overall, the worst in terms of the oil and gas sector appears to be over, although the outlook is still dismal. 
  • We have rolled our valuations into FY17 and using the improved P/B of 1.05 due to recent re-rating of the banking sector, our fair value estimate increases from S$17.83 to S$18.99. 
  • As the upside is less than 10%, we are maintaining our HOLD rating, but will turn buyers at $17.80 or lower.

Carmen Lee OCBC Investment | http://www.ocbcresearch.com/ 2017-02-16
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 18.99 Up 17.830