DBS Group - OCBC Investment 2018-02-09: Special S$0.50 CNY AngBao!

DBS Group - OCBC Investment 2018-02-09: Special S$0.50 CNY AngBao! DBS GROUP HOLDINGS LTD D05.SI

DBS Group - Special S$0.50 CNY AngBao!

  • Good set of FY17 earnings.
  • Increase in dividend payout.
  • DBS remains our pick.

Broad-based growth 

  • DBS delivered a good set of FY17 results. Net profit of S$4,371m was up 3% from the previous year, fairly in line with market and our expectations. Net Interest Income rose 7% to S$7791m, while Non-interest Income gained 7% to S$4483m. 
  • On a q-o-q basis, 4Q17 allowances came off 72% from S$815m in 3Q17 to S$225m. The final quarter’s performance was led by an increase in wealth management and higher unit trust and other investment product sales. In addition, Investment Banking also saw a doubling in fees from higher equity market and fixed income activities. 
  • Management declared a final dividend of 60 cents per share, bringing full-year dividends to 93 cents, up 55% from 60 cents in 2016. In addition, it also proposed a special dividend of 50 cents.

Optimistic about 2018 

  • Management is upbeat about the outlook for 2018. Riding on the broad-based growth in 2017, the momentum is likely to continue into 2018. It currently has a 30.8% share of the Singapore mortgage market from active efforts to grow this segment and buoyed by the improving outlook for the Singapore residential market in recent months. 
  • Wealth is another growth pillar and this will leverage on its current and still growing AUM of S$206b. For 2017, wealth income grew 25% to S$2.1b. 
  • The bank is also continuing with its push to digitalise its business and gain market share.

Year of the dog CNY AngBao of higher dividends 

  • Management is guiding for loans growth of 7-8% and for margin improvement due to a more favourable interest rate environment for banks. It is expecting to maintain its cost-income ratio at 43%. 
  • Dividend payout will go up to S$1.20 in 2018. 
  • On capital, management expects Basel rules to have minimal impact on its capital or about a 5% increase in RWA by 2022. 
  • As its FY17 performance was largely in line with our expectations, we are largely retaining our estimates for FY18 and FY19. Despite recent sharp market volatility, DBS is still up about 2.1% YTD. At S$25.36, the stock is offering dividend yield of about 4.7%. 
  • Our fair value estimate remains unchanged at S$29.50. DBS remains our pick in the sector.

Carmen Lee OCBC Investment | http://www.iocbc.com/ 2018-02-09
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 29.500 Same 29.500