DBS - RHB Invest 2017-02-16: NIM To Widen From The Current Level

DBS - RHB Invest 2017-02-16: NIM To Widen From The Current Level DBS GROUP HOLDINGS LTD D05.SI

DBS - NIM To Widen From The Current Level

  • We project NPL ratio would rise to 1.7% at end-2017 (from 4Q16’s 1.4%). We believe oil & gas NPLs would keep provisions escalated. 
  • On a positive note, 2017 NIM should widen from 4Q16’s 1.71% as Fed rate hikes are likely to drive SIBOR higher. 
  • Our 2017 net profit growth forecast of 5% is unexciting, and DBS’ share price surge of 21% over the past four months has priced in the positives. 
  • We downgrade to NEUTRAL (from Buy). 
  • Our TP is raised to SGD19.80 (from SGD18.40, 7% upside) as we lower its CoE to 9.8% (from 10.1%). We also raise our 2017 net profit forecast by 4%.

We forecast NPL ratio to rise to 1.7% by end-2017, from 1.4% in 4Q16. 

  • Management sees continued stress from the oil & gas sector, and factoring weakness in the SME space, we forecast an even higher NPL ratio of 1.7% at end-2017. 
  • Management guided for its 2017 provisioning to be close to that of the 2016 level excluding Swiber – we forecast 2017 provisioning of SGD1.5bn (inclusive of the SGD350m GP from sale of DBS China Square Ltd).

Management guided 2017 NIM to be close to its 2016 average. 

  • 4Q16 NIM of 1.71% was 6 bps narrower QoQ, as SGD interest rates were soft. 
  • Nevertheless, we believe the impending US Federal Reserve rate hikes would widen its NIM to 1.81% in 2017 (vs 2016’s 1.8%). This factor, coupled with projected 2017 loan growth of 4% should expand NII.
  • Our forecasted 18% growth for 2017 non-interest income has factored in the Australia and New Zealand Banking Group (ANZ) acquisition and SGD350m one-time gain from the divestment of DBS China Square. Excluding that divestment, growth would have been at a milder 9%.

Downgrade to NEUTRAL. 

  • After fine-tuning our assumptions, we tweak our GGM-derived TP to SGD19.80 on: 
    1. Factoring in 9.8% CoE and 10.2% ROE (2016 ROE was 10.1%); 
    2. Implying1.1x2017FP/BV.


  • The downside risks to our forecast include higher-than-expected impairment charges and weaker-than-expected NIMs. 
  • The converse represents the upside risks.

Leng Seng Choon CFA RHB Invest | http://www.rhbinvest.com.sg/ 2017-02-16
RHB Invest SGX Stock Analyst Report NEUTRAL Downgrade BUY 19.80 Up 18.40