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

DBS GROUP HOLDINGS LTD D05.SI

DBS Group - Above Consensus 1Q

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.

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.

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