DBS Group - CIMB Research 2018-02-08: 4Q17 Raining Dividends, Hallelujah!

DBS GROUP HOLDINGS LTD D05.SI

DBS Group - 4Q17 Raining Dividends, Hallelujah!

DBS Group's FY17 core net profit of S$4,390m (+4% y-o-y) was in line with consensus and our expectations, at 100% of our full-year forecast.
The narrative for the quarter was a declaration of final DPS of 60 Scts/share, bringing full-year DPS to 93 Scts (+55% y-o-y) as well as another special DPS of 50 Scts.
The record quarter was driven by higher NII, higher fees and lower net allowances.
For FY18F, we remain positive on DBS on rate-hike-tailwind, higher fee income, lower credit costs and increased returns to shareholders.

Reiterate ADD with a higher GGM-based Target Price. Downside risks could come from weaker NIM expansion and softer macros.

DBS Group's 4Q17 core net profit jumped 33% y-o-y to a quarterly record of S$1,218m, underpinned by higher NII (up 15% from higher assets under management [AUM] and loan volumes), higher fees (up 23% from broad-based growth) and lower net allowances. As a result, PPOP grew 9% y-o-y.
The narrative for the quarter was the declaration of a final DPS of 60 Scts/share, bringing full-year DPS to 93 Scts (+55% y-o-y), as well as another special DPS of 50 Scts (right size of capital and to mark the 50th anniversary of DBS).

NII increased 15% y-o-y to cross over S$2bn. NIM increased 5bp q-o-q/7bp y-o-y to 1.78%. FY17 NIM averaged 1.75% (FY16: 1.8%). With higher interest rates, we are modeling in FY18F NIM to increase by 8bp y-o-y to 1.83%.
Gross loans grew 4% q-o-q or S$11bn (including S$2bn from consolidation of ANZ Taiwan), bringing 2017 loan growth to 11% (or S$33bn higher including S$8bn from ANZ). Underlying growth was due to corporates and SGP housing loans. We are modeling in a 7.6% loan growth for FY18F-19F.

Net fee income rose 23% y-o-y, though it was down 7% q-o-q due to seasonally-slower wealth management (WM) and loan-related fees. FY17 WM income/AUM rose 25%/24% yoy to S$2.1bn/S$206bn. Other non-NII fell 26% y-o-y due to a decline in trading income.
Expenses rose 11% y-o-y due to consolidation of ANZ and higher technology expenses. FY17 expenses grew just 3% y-o-y on productive gains.
Cost-income ratio was stable at 43%; we expect a similar CIR for FY18F as DBS accelerates near-term tech investments.

Total allowances declined 51% y-o-y/72% q-o-q to S$225m as SP (specific provisions) normalised to 25bp of loans. No further charges were taken for O&G support services after the accelerated recognition of residual O&G exposures as NPAs in 3Q.
New nonperforming assets declined q-o-q to S$362m, with NPL ratio stable at 1.7%. Given a benign credit environment, we assume 24bp credit costs for FY18F vs. through-the-cycle level of 27bp.
Also, we note that S$85m would be transferred to RLAR (regulatory loss allowance reserves) come “Day One” to meet MAS’s 1% requirement.

DBS estimates that Basel final rules has limited capital impact – risk-weighted assets (RWA) is expected to only increase by c.5% by 2022. As such, other than the increased payout and special dividend, it has also suspended its scrip dividend with immediate effect.
Post the 4Q17 payout, we estimate the fully-phased-in CET 1 to drop to 13% (4Q17: 13.9%), which we believe is still a very comfortable level for the bank. With earnings growth, we expect DPS of S$1.20 to be sustained (implied 4.5% yield).

The various operational metrics (mortgage, cards, wealth, SME lending, cash management, trade) demonstrate broad-based growth for the group. For FY18F, we remain positive on DBS on rate-hike-tailwind, higher fee income, lower credit costs and increased returns to shareholders.
Longer-term, we strongly agree with its digitalisation efforts. We increase our FY18-19F EPS by 4-4.1% on higher NII and fee income growth.
Accordingly, our GGM-based Target Price is also increased (to S$29.00) (implied 1.5x FY18F P/BV vs. 12.3% FY18F ROE or 11.6x FY19F P/E).

YEO Zhi Bin CIMB Research | http://research.itradecimb.com/ 2018-02-08

CIMB Research SGX Stock Analyst Report ADD Maintain ADD 29.00 Up 25.000