DBS - RHB Invest 2019-01-21: Still More Upside From Wider NIM Trend


DBS - Still More Upside From Wider NIM Trend

  • Maintain BUY with SGD29.80 Target Price – pegged to 1.54x 2019F BV – granting 19% upside plus 5% FY19F yield. This is premised on our long-term ROE assumption of 13.8%, close to management guidance of 13% by 2019 (from 9M18’s 12.4%).

Expect NIM to have widened in 4Q18.

  • The 3-month SIBOR has been on a rising trend, hitting a 4Q18 average of 1.73%, up from 3Q18’s 1.63%. It is currently 1.89%. There is some lag effect from the SIBOR rise to filter through to NIM widening – nonetheless, we believe DBS GROUP HOLDINGS LTD (SGX:D05)’s 4Q18 NIM would have widened from 3Q18’s 1.86%.
  • We forecast a higher 2019 NIM of 1.92%, premised on a gradually rising US federal funds rate (FFR).

DBS fixed deposit rates have risen.

  • Data from Bloomberg showed that DBS’ 12-month fixed deposit rate (for amounts less than SGD500,000) has risen to 0.95% in early January, from 0.6% in mid-2018. This reflects the impact of a rising SIBOR. Whilst this will raise cost of funds, lending yields would have risen more, thereby contributing to a likely wider 4Q18 NIM.

Consumer loans growth likely slower in 4Q18.

  • After the Jul 2018 residential property tightening measures, the mortgage business has slowed. However, corporate loan growth momentum was sustained in 4Q18. We forecast 2019 DBS loan growth of 6% after factoring in the slower pace of home mortgage expansion.
  • Expect weak 4Q18 trading income, on the back of a flat yield curve. Given the volatile capital markets, 4Q18 wealth management income is likely to be subdued as well.

CIR is usually higher for 4Q.

  • We are positive on DBS’ digitisation initiatives, which should lead to lower CIR over the next few years. We see PayNow as an example of a nation-wide initiative that could lead to lower usage of cash notes, helping banks lower their CIR over the longer term.

Our long-term ROE assumption is 13.8%.

  • This is on track, as evident from management’s guidance of 13% by 2019 (from 9M18’s 12.4%). Our CoE assumption is 10%, yielding a target P/BV of 1.54x, which is applied to our 2019F BV to derive our SGD29.80 Target Price.
  • We believe the premium over its 5- year historical average P/BV of 1.2x is justified, given the rising NIM trend.
  • Downside risks to our forecasts include higher impairment charges and weaker-than-expected NIM.

Leng Seng Choon CFA RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-01-21
SGX Stock Analyst Report BUY MAINTAIN BUY 29.800 SAME 29.800