DBS Group - OCBC Investment 2017-05-02: Above Consensus 1Q

DBS Group - OCBC Investment 2017-05-02: Above Consensus 1Q DBS GROUP HOLDINGS LTD D05.SI

DBS Group - Above Consensus 1Q

  • Record net fee income.
  • Improving outlook.
  • Raised FV to S$19.97.

Improvement on several fronts 

  • DBS reported 1Q17 net earnings of S$1.21b this morning, up 1% YoY or 33% QoQ, and higher than consensus estimates of S$1.12b as polled by Bloomberg. Including one-off items, net profit was S$1.25b.
  • While Net Interest Income was flat, Non-interest Income improved QoQ and YoY, and this was largely due to better Fee & Commission Income as well as higher Net Income from Investment Securities.
  • Allowances remained elevated at S$550m this quarter, up from S$462m in the previous quarter. Net Interest Margin (NIM) improved from 1.71% in the last quarter to 1.74% this quarter. NPL ratio stayed flat at 1.4% QoQ.

Guidance points to better earnings outlook 

  • Buoyed by a better market, DBS’s 1Q17 result was supported by gains on several fronts including its wealth and consumer banking business (higher investment products and unit trust sales), but Treasury Markets saw a drop in income. AUM hit S$170b, with strong Wealth Income of S$516m. 
  • In terms of outlook, management has guided for mid-single digit loans growth, and expects NIM to be at 2016 average if rate assumptions materialise. It expects cost-income ratio to hold at 43% in 2017 (43.2% in 1Q17). 
  • It also guided for NPL formation to moderate from 2016 level; and expects total allowances to be similar to 2016, ex Swiber (total allowances was S$1434m in 2016). HK doubled earnings QoQ due to higher income and lower expenses and NIM improved from 1.64% last quarter to 1.79% this quarter. 
  • Management expects NPLs to continue in the Oil & Gas support services sector, but to come off from last year’s level.

Upping FY17 estimates; FV increased to S$19.97 

  • The worst appears to be over for its NPLs and the earnings outlook is improving, especially with potentially higher interest rates on the local front. With a healthy loans pipeline, still growing wealth income and a careful watch over cost, we have taken the above into our earnings projections, raising our F17 earnings from S$4488m to S$4674m.
  • Together with the recent re-rating, we have also upped our valuation metric, increasing our fair value estimate from S$18.99 to S$19.97.
  • DBS has done well, up 12% YTD. At current price, we maintain our HOLD rating.

Carmen Lee OCBC Investment | http://www.ocbcresearch.com/ 2017-05-02
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 19.97 Up 18.990