DBS Group - OCBC Investment 2018-04-30: Buy Lah!

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DBS GROUP HOLDINGS LTD D05.SI

DBS Group - Buy Lah!

• Stellar 1Q18 results.
• Management remains optimistic.
• Good dividend yield of 4%.

Record high 1Q18 net earnings

• DBS kick-started the 1Q result season for the banks with a strong set of earnings. 
• Net earnings of S$1.51b, which beat market expectations, were up 21% y-o-y and 27% q-o-q. This is also a record quarterly high for the group. 
• The sale of one floor of a HK asset netted S$86m this quarter. 
• Net Interest Margin (NIM) improved from 1.74% in 1Q17 and 1.78% in 4Q17 to 1.83% in 1Q18. 
• Cost-to-income ratio improved from 44.4% last quarter to 41.6% this quarter. 
• NPL ratio came off from last quarter’s 1.7% to 1.6%. 
• ROE improved from 10.5% last quarter to 13.1% this quarter. 
• Fee Income jumped 12% y-o-y and 17% q-o-q to S$744m; the key contributor was its Wealth Management business which saw a sharp increase of 49% y-o-y to S$331m, forming 39% of total Fee Income now.

Performance on track

• CEO Piyush Gupta is fairly optimistic about its outlook, highlighting that the “pipeline is strong and we expect to continue to capture business opportunities and delivering shareholder returns in the coming year.” 
• Management is expecting NIM of at least 1.85% this year as the group is poised to benefit from higher interest rates. Wealth is another driver, as the group is now enjoying higher productivity from a bigger base and rising AUM. 
• Management is guiding for cost-to-income ratio of 43%. While Fintech is a potential threat, on its digital front, DBS is enjoying good traction from its channels with wide adoption locally for Paylah! and PayNow.

Raising Fair Value to S$34.60

• Following the better-than-expected 1Q18 results, we have raised our FY18 earnings from S$5654m to S$5874m, up 3.9%. 
• While our fair value was already amongst the highest in the street before the results, we have fine-tuned and raised Fair Value from S$32.53 to S$34.60. 
• DBS has stayed consistently on our top stock pick list and the stock price has done well, up 21% YTD. With a dividend payout of S$1.20, dividend yield is 4.0%.

Carmen Lee OCBC Investment | http://www.iocbc.com/ 2018-04-30

SGX Stock Analyst Report BUY Maintain BUY 34.60 Up 32.530