DBS Group - CGS-CIMB Research 2019-02-18: 4Q18 First Take ~ NIM Expansion To Continue In FY19


DBS Group - 4Q18 First Take: NIM Expansion To Continue In FY19

  • DBS GROUP HOLDINGS LTD (SGX:D05)’s net profit of S$1.32bn in 4Q18 was spot on with our expectations but 4% below consensus. FY18 formed 100%/98% of our/consensus FY18F.
  • NIM rose 1bp q-o-q to 1.86% (3Q18: 1.85%). FY18 NIM increased 10bp y-o-y to 1.85% (FY17: 1.75%). 2H18 DPS of 60 Scts was in line. ROE was 11.3%.
  • Key 2019 guidance: Mid single-digit loan growth, continued NIM expansion and high single-digit income growth.
  • Maintain ADD and Target Price of S$29.00.

Net interest income spot on

  • DBS’ 4Q18 NII rose 2.5% q-o-q and 11.1% y-o-y to S$2.33bn.
  • NIM increased 1bp q-o-q to 1.86% (3Q18: 1.85%). FY18 NIM increased 10bp y-o-y to 1.85% (FY17: 1.75%).
  • Loans expanded 1.4% q-o-q in 4Q18, bringing FY18 growth to 6.8% (FY17: +7.2%). Growth was mainly due to non-trade corporate loans; consumer and trade loans were stable q-o-q.
  • Deposits grew 1.4% q-o-q in 4Q18, mainly driven by US$ and S$ FDs. LDR was broadly stable at 87.6% (3Q18: 87.7%).

Non-interest income in line; wealth weakness well flagged; cards higher

  • DBS’ 4Q18 Non-II came in at S$915m (-17% q-o-q and -4.5% y-o-y), slightly above our S$902m.
  • Wealth management dropped 25% q-o-q and 4% y-o-y to S$229m, a well-flagged weakness. However, improved credit card fees (+9% q-o-q, +34% y-o-y) and sustained fee income from trade and transaction services (+4.3% q-o-q, +10.5% y-o-y) cushioned the dip in wealth management.

CIR higher q-o-q at 46.3%; credit cost dipped q-o-q to 24bp

  • DBS’ CIR increased to 46.3% in 4Q18 (3Q18: 43.9%) due to more subdued non-interest income. FY18 CIR increased to 44.1% (FY17: 42.4%) for the same reason.
  • Credit cost slid q-o-q to 24bp (3Q18: 27bp). Asset quality stayed healthy, with a lower NPL ratio of 1.5% - reduction in absolute NPLs mainly came from South and Southeast Asia and the manufacturing industry. An uptick in new NPA formation to S$280m in 4Q18 (3Q18: S$233m) was more than offset by larger recoveries.
  • CET-1 ratio improved to 13.9% (3Q18: 13.3%). 4Q18 ROE was 11.3% (3Q18: 12.2%).

2019 guidance

  • DBS’ management guided for mid single-digit loan growth and further NIM expansion. Income growth is projected to record high single-digits.
  • The cost-income ratio is expected to come in at 43% while specific allowances are likely to be at cycle average. ROE should continue to improve.
  • We maintain our ADD call and GGM-based Target Price of S$29.00.
  • Downside risks are lower-than-expected loan growth in regional markets.

Andrea CHOONG CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://research.itradecimb.com/ 2019-02-18
SGX Stock Analyst Report BUY MAINTAIN BUY 29.000 SAME 29.000