DBS - RHB Invest 2019-04-10: Higher Lending Yields To Widen 1Q19 Net Interest Margin

DBS GROUP HOLDINGS LTD (SGX:D05) | SGinvestors.io DBS GROUP HOLDINGS LTD (SGX:D05)

DBS - Higher Lending Yields To Widen Net Interest Margin

  • Still a BUY with higher SGD29.60 Target Price from SGD28.80, based on 2020F P/BV of 1.43x, giving 10% upside plus 4% FY19F yield.
  • We believe our long-term ROE assumption of 13.5% (vs 2018’s 12.2%) is achievable given greater NIM expansion in 1H19 on top of digitisation-driven cost efficiencies.
  • We spoke with DBS GROUP HOLDINGS LTD (SGX:D05)’ management – key takeaways are highlighted in this report.



Higher home mortgage interest rates positive for 1Q19 NIM.

  • In February, management guided for 2019 NIM to be 4-5bps wider vs 2018’s. Home mortgage interest rates, which are pegged to fixed deposit rates or Fixed Deposit Home Rate (FHR), saw increases in January and March – the effect is significant as half of DBS’ home mortgages are FHR-based.
  • We should see some NIM widening in 1Q19 arising from the January mortgage rate rise. The March mortgage rate rise will likely raise NIM from 2Q19 onwards.


Rising SIBOR will help raise lending yields for business loans.

  • The 3- month SIBOR averaged 1.92% in 1Q19, higher than the 1.73% average in 4Q18, and 1.63% in 3Q18. Business loan repricing typically lags by about three months. Business loans’ lending yields would have risen in 1Q19, with more increases expected in 2Q19.


1Q19 loan growth to come from business segment.

  • Home mortgage growth is weak but growth from business lending is expected to stay respectable. Management guided for mid-single digit 2019 loan growth – our forecast is 5%.
  • High 1Q18 base for wealth management fees seen to cap y-o-y growth for 1Q19.


Our long-term ROE assumption is 13.5%.

  • In February, management guided for 2019 ROE of 12.5% vs 2018’s 12.1%, assuming no FFR hikes in 2019. Digitisation efforts could contribute to further ROE enhancement over the next few years.
  • Our Target Price is raised by 3% to SGD29.60 as we roll over our P/BV valuation to 2020F.
  • 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/ 2019-04-10
SGX Stock Analyst Report BUY MAINTAIN BUY 29.60 UP 28.800



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