DBS GROUP HOLDINGS LTD
SGX:D05
DBS - Management Raises 2018 Net Interest Margin Guidance
- Maintain BUY and SGD30.30 target price, 13% upside.
- 1H18 earnings represented 50% of our full-year forecast, while 2Q18 NIM widened 2bps q-o-q to 1.85% on higher Singapore and Hong Kong interest rates. However, both net trading income and wealth management fees contracted q-o-q.
- We raise our 2018 NIM forecast to 1.87% from 1.85%, in line with management’s guidance at the recent results briefing.
- We derive our Target Price on our assumption of long-term ROE of 13.6%. Widening NIM is the catalyst to drive DBS’ share price higher.
DBS’ 2Q18 net profit stood at SGD1.33bn,
- DBS’ 2Q18 net profit stood at SGD1.33bn down 12% q-o-q (+18% y-o-y). Excluding one-time items, core net profit should have been slightly higher at SGD1.37bn.
~ SGinvestors.io ~ Where SG investors share
We expect NIMs to widen over the next 2-3 years.
- 2Q18 NIM of 1.85% was 2bps wider q-o-q – it was 11bps wider y-o-y. Exiting June, NIM stood at 1.88%.
- Management has now guided for 2018 NIM of 1.86-1.87%, wider than the pre-results guidance of 1.85%. We are forecasting 2018-2019 NIMs of 1.87% and 1.95%, premised on a rising federal funds rate (FFR) in the US.
Slower loan growth guidance due to trade loans.
- DBS’ 2Q18 loans were 3% higher q-o-q, driven mainly by building and construction loans, which rose by 6% q-o-q. In constant currency terms, loans expanded by 1% q-o-q, as consumer and non-trade corporate borrowings grew 2%.
- Looking ahead, management guided for 2018 loans of 6-7% vs the pre-results guidance of 8%. We forecast a 2018 loan expansion of 6.5%.
Weakness in net trading income.
- DBS’ 2Q18 net trading income of SGD227m was down 38% q-o-q (-23% y-o-y). Treasury markets’ income of SGD107m (-57% q-o-q) was impacted by widening Asian credit spreads and a flattening yield curve. Despite some structural impact from exchange trading and high frequency, management expects some pickup in 2H18.
- 1H18 dividend of SGD0.60/share was declared vs SGD0.33 a year ago. We are forecasting an FY18 full-year dividend of SGD1.20/share.
Our long-term ROE assumption is maintained at 13.6%
- Our long-term ROE assumption is maintained at 13.6%, consistent with management guiding for 13-14% (14% is achievable if costs are well controlled). Factoring in our cost of equity (CoE) assumption of 10.2%, we obtain a target P/BV of 1.46x, which leads to our Target Price of SGD30.30.
- During the previous FFR upcycle between mid-2003 and mid-2007, the FFR rose to > 5% from 1%. For that duration, DBS’ P/BV correspondingly rose as high as 1.9x from 1.04x. Currently, the bank only trades at 1.3x 2019F book, and our target P/BV is set at 1.46x.
- We maintain our BUY recommendation and SGD30.30 Target Price, 13% upside.
- Downside risks to our forecasts include higher impairment charges and weaker NIMs.
Leng Seng Choon CFA
RHB Securities Research
|
https://www.rhbinvest.com.sg/
2018-08-02
SGX Stock
Analyst Report
30.300
Same
30.300
