DBS Group - Phillip Securities 2019-07-12: Decent Growth & Yield

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

DBS Group - Decent Growth & Yield

  • NIM expansion to continue as interest rates remain elevated in Singapore and lagged repricing from longer-term loans.
  • Loans growth expected to be slower but asset quality is healthy.
  • Dividend yield play provides a more defensive option for investors.
  • Maintain ACCUMULATE with an unchanged target price of S$29.00.



Background

  • DBS GROUP HOLDINGS LTD (SGX:D05) and its subsidiaries provide a variety of financial services. The Company offers services including mortgage financing, lease and hire purchase financing, nominee and trustee, funds management, corporate advisory and brokerage. DBS Group is the largest bank in SE Asia.


Investment Merits/Outlook


Higher earnings sensitivity to interest rates with the largest CASA base.

  • Among the banks, DBS has the largest Current and Savings Account (CASA) balance. CASA is the cheapest source of funding with low savings deposit rates. With the largest share of low-cost funds, DBS has the cheapest cost of funds while repricing its loans at higher interest rates, resulting in the highest NIM amongst the Singapore banks.

Last NIM rally.

  • As we reach the end of the interest rate cycle, we expect a couple more quarters of margin expansion. By blending in the effects of rising cost of funds and the lagged effect of loan repricing we pen in our estimate for FY19e NIM at 1.90%.

Higher interest rates in Singapore and Hong Kong to drive NIM expansion.

  • DBS is a beneficiary of higher interest rates in Hong Kong given its larger Greater China franchise. However, the risk of having a weaker pass-through rate and rate cuts in 2019 could cut short our NIM expectations.
  • A rise in interest rates could place pressure on the banks’ SME loan portfolio and any broad-based deterioration in SME loan quality could be a sign of an economic downturn.

Unexciting loans growth in FY19 due to property cooling measures and slowing economic growth.

  • We expect the property cooling measures and rising interest rates to limit consumer loans growth in 2019. Mortgage growth has been slowing ever since the peak in May last year and given the bulk of consumer loans come from mortgage loans, consumer loan growth will be unexciting this year. We forecast FY19e loans growth at 5.4% y-o-y.

Dividend yield play provides a more defensive option for investors

  • because they usually hold up well during market corrections. DBS’ robust business supports its commitment to pay increasing dividends. We forecast dividend yield of 4.7% in FY19e.

Higher IT spending to streamline systems may delay meaningful cost-to-income ratio improvements in the medium term.

  • However, we expect this trend to reverse when tech-related savings and new revenue begin to flow through in the long term.


Investment Action

  • Maintain ACCUMULATE with target price of S$29.00.
  • Despite the softer expectation of loans growth due to market headwinds, we expect a couple more quarters of NIM expansion due to loan repricing.
  • Looking forward, the asset quality is expected to be stable and greater cost efficiencies from the company’s digitalisation efforts should provide upside to earnings.
  • DBS remains attractive with FY19e dividend yield of 4.7%.





Tin Min Ying Phillip Securities Research | https://www.stocksbnb.com/ 2019-07-12
SGX Stock Analyst Report ACCUMULATE MAINTAIN ACCUMULATE 29.000 SAME 29.000



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