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

DBS GROUP HOLDINGS LTD D05.SI

DBS GROUP - Single-Digit Growth

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).

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 .

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