DBS GROUP HOLDINGS LTD (SGX:D05)
DBS Group - No Time To Be Sentimental
Integrating retail brokerage will improve cost-income
- The Business Times has reported that DBS GROUP HOLDINGS LTD (SGX:D05) will be transferring retail equity trading to the bank, leaving its equity-brokerage business – DBS Vickers – focusing just on institutional clients.
- DBS is looking to drive retail equity trading online from the traditional remisier model, with significant investments in technology. This should lower costs and accelerate scaling. Together with multi-product, integrated advisory services as opposed to higher-cost single-product-specialist services, cost-to-income can be better managed, in our view. These moves are consistent with DBS’ intention to return to its commercial-banking roots to develop interest and wealth-management income.
- No change to our EPS or GGM-based Target Price of SGD29.56 With rising ROEs and yields of 5.5%, maintain BUY.
- DBS remains our top pick.
Traditional trading: high costs, low returns?
- In our view, the traditional retail broking business which uses self-employed remisiers is declining. Retail-trading customers have been shifting to self-directed online trading.
- The remisier pool is itself dwindling from competition from fast-growing wealth-management opportunities. Maintaining high-cost back-end systems to support traditional trading vs low-cost, quickly-scalable online platforms is becoming untenable, in our view.
Integrated products should help lower costs
- We believe DBS’ move will enable it to offer multi-asset products through an integrated platform to a larger customer base.
- We expect a wider range of sophisticated products being offered across its customer spectrum under wealth management. This should enable the group to lower costs vs single-product specialists such as retail stock brokers and maximise customer returns.
Rising ROEs & dividend yields; top BUY
- While brokerage only contributes 5-6% to fee income, the current move marks further execution of a return to commercial banking – by maximising sustainable income and managing costs. This should support rising ROEs and 5.5% prospective yields.
- Maintain BUY and top sector pick.
Thilan Wickramasinghe
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2019-02-21
SGX Stock
Analyst Report
29.56
SAME
29.56
