DBS Group - Maybank Kim Eng 2019-05-15: Navigating Volatility

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DBS GROUP HOLDINGS LTD (SGX:D05)

DBS Group - Navigating Volatility

DBS is well positioned to weather macro risks

• The structural changes DBS GROUP HOLDINGS LTD (SGX:D05) underwent post GFC are now starting to pay dividends. 1Q19 NIMs were up 5bps y-o-y – the sixth consecutive quarter of growth.
• Fee income contributed 59% of non-interest income. Its shift to sustainable, more visible earnings sources rather than depending on volatile trading income, should allow DBS to navigate macro volatility.
• DBS’s large exposure to North Asia is a concern given trade-war tensions. However, given their low cost funding base there and exposure to high quality financial clients, we believe DBS has a strong platform to perform.
• Our adjustments following 1Q19 earnings and elevated macro risks sees us lowering 2019-2021E earnings by 1-2%. Our Target Price has been lowered from SGD29.56 to SGD29.46. Maintain BUY.

Well positioned for China risks

• Hong Kong & Greater China has delivered 25% of PAT on average in the past 5-years. Elevated trade tension here may have an impact on earnings going forward.
• According to Management, a large portion of DBS’ exposure in China is to other banks, which lowers counterparty risks. In addition, around 60% of group funding in HK is derived from low cost CASA, which enables them to better navigate rate volatility. These put DBS in a position of strength to respond to macro uncertainties.

Entrenched position in Singapore

• 70% of PAT on average came from Singapore in the past 5-years. Here DBS has a market leading franchise for low cost CASA deposits and a large corporate banking position. In addition, the group has the largest domestic bank wealth management AUM (~USD112bn), which provides significant fee income opportunities.
• DBS’ entrenchment in its domestic market should provide an additional safety net in the face of macro risks in North Asia, in our view.

Lower Target Price. Maintain BUY

• Incorporating 1Q19 actuals and taking into account heightened macro risks, we adjust 2019-2021E earnings by 1-2%. Similarly, we have lowered our multi-stage DDM (COE 10.3%, 3% terminal) Target Price from SGD29.56 to SGD29.46.
• Maintain BUY.
• See also sector report: Singapore Banks - Through the Fog Of War.

Thilan Wickramasinghe Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-05-15

SGX Stock Analyst Report BUY MAINTAIN BUY 29.46 DOWN 29.560