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.
Risks.
- 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
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http://www.rhbinvest.com.sg/
2018-02-08
RHB Invest
SGX Stock
Analyst Report
25.00
Up
23.330
