DBS - RHB Invest 2017-08-04: 2H17 Provisions Expected To Stay High

DBS - RHB Invest 2017-08-04: 2H17 Provisions Expected To Stay High DBS GROUP HOLDINGS LTD D05.SI

DBS - 2H17 Provisions Expected To Stay High

  • DBS's 2Q17 net profit was in line with expectations, although the lack of sequential NIM widening was disappointing. 
  • Specific provisioning charges rose 56% QoQ, as oil & gas collateral values fell. 
  • Management guided for higher NPLs from the oil & gas space going forward, and sees continued high provisions. 
  • We raise our 2017F provision expectations by 11% to SGD1.54bn, which led to a mild 1% cut in 2017 net profit forecast. With this uncertainty, we maintain our NEUTRAL recommendation, with a slight increase in TP to SGD20.65 (from SGD20.50, 6% downside).

We forecast NPL ratio to rise to 1.6% by end-2017, from 2Q17’s 1.5%. 

  • Management guided that asset quality stress from the oil & gas sector remains, as crude oil prices remain low at c.USD50/bbl. Management sees more NPLs coming from the non-state-owned shipyards, which are also the smaller players.
  • Its 2Q17 credit cost (specific loan allowances) of 40bps was higher than 1Q17’s 26bps. Provisioning was primarily due to deterioration in collateral values of oil & gas assets. 2Q17’s loan loss coverage of 100% was down from 1Q17’s 103%.
  • In line with guidance for higher future NPLs, management said 2017 specific provisions could be higher than previous guidance. Our 2017 provision expectation is SGD1.54bn, with 1H17 at SGD0.85bn.

Management guided 2017 NIM to be 1.75-1.76%. 

  • 2Q17’s NIM of 1.74% was flat QoQ. We believe SIBOR/SOR strength in recent weeks could help widen its 2017 NIM to 1.76% (vs 1H17’s 1.74%). 
  • 2Q17’s loan was 1.5% higher QoQ, driven by the manufacturing and building & construction segments. 
  • DBS has increased its Singapore’s mortgage loan share to 28.7% currently (from Jun 2016’s 27.9%). We are projecting loan growth of 4% in 2017.

Results in line. 

  • 2Q17 net profit was SGD1,130m. Excluding one-time items, 2Q17 net profit of SGD1,140m was down 6% QoQ. 
  • 1H17 net profit of SGD2,375m represented 53% and 50% of ours and consensus pre-results 2017 net profit forecasts respectively. However, given the guidance of higher provisions for 2017, we marginally lowered our FY17F net profit by 1%. However, we raised our FY18 and FY19 net profit forecasts by 5% and 7% respectively primarily on higher net interest income expectations.
  • Our GGM-derived TP of SGD20.65 assumes CoE of 9.9% and ROE of 10.8% (2016 ROE was 10.1%). 
  • Our TP implies 2017F P/BV of 1.10x (close to 4-year historical average of 1.06x).


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

Leng Seng Choon CFA RHB Invest | http://www.rhbinvest.com.sg/ 2017-08-04
RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 20.65 Up 20.500