DBS - RHB Invest 2018-02-08: Stable Growth, But Largely Priced In

DBS - RHB Invest 2018-02-08: Stable Growth, But Largely Priced In DBS GROUP HOLDINGS LTD D05.SI

DBS - Stable Growth, But Largely Priced In

  • DBS’ 4Q17 results were in line with expectations. 2017’s net profit of SGD4.37bn was between our SGD4.21bn forecast and consensus’ SGD4.46bn estimate. 
  • Positives included 4Q17 NIM widening 5bps q-o-q (with higher SGD interest rates) and higher dividends (inclusive of a special dividend). 
  • Given the encouraging loan growth and NIM, we raised our 2018F net profit by 9%. 
  • We also raised our Target Price to SGD25.00 (from SGD23.33, 1% downside). However, we believe the positives are largely priced in – hence our NEUTRAL call is maintained.

Earnings were in line. 

  • Excluding one-time items – mainly due to integration costs for Australia and New Zealand Banking Group Ltd’s (ANZ) banking businesses – 4Q17 core net profit of SGD1,218m was up 48% q-o-q (+33% YoY). 2017’s earnings were in line with expectations.

Expect wider 2018 NIM. 

  • 4Q17 NIM of 1.78% was 5bps wider q-o-q, and 7bps higher y-o-y. Management indicated the exit NIM of around 1.80%, and guided for wider NIM in 2018 (vs 2017). We forecast 2018 and 2019 NIM of 1.82% and 1.85% respectively.
  • We are forecasting 10% total income growth in 2018, close to management’s guidance of low double-digit. Despite ANZ’s higher cost-to-income ratio (CIR), management sees 2018 CIR at 43%.

High single-digit 2018 loan growth likely. 

  • Loans were higher by 3% q-o-q in 4Q17, with housing loans (22% share of total loans) up 5% q-o-q. 
  • Loans were up 7% y-o-y. Our 2018 loan growth forecast is close to management’s guidance of 7-8%.

Asset quality stabilising. 

  • 4Q17’s NPL ratio of 1.7% was unchanged q-o-q.
  • 4Q17’s credit cost (specific loan allowances) of 25bps was a significant reduction from 3Q17’s 195bps, but within expectations – we had expected a significant fall in 4Q17 credit cost, after the huge jump in 3Q17. 
  • We forecast NPL to fall to 1.6% by end-2018.

Special dividend declared. 

  • The Board declared a final dividend of SGD0.60/share (2016: SGD0.30) plus a special dividend of SGD0.50/share.
  • Management said it is reasonable to assume SGD1.20/share annual dividend going forward.
  • Our revised GGM-derived Target Price of SGD25.00 assumes CoE of 10% and ROE of 12.1% (4Q17 ROE was 10.5%). Our Target Price implies 2018F P/BV of 1.3x, which is marginally higher than the 5-year average of 1.15x.


  • Downside risks to our forecasts 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/ 2018-02-08
RHB Invest SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 25.00 Up 23.330