DBS Group - RHB Invest 2019-07-12: NIM Likely Wider In 2Q19, But Peakish; BUY


DBS Group - NIM Likely Wider In 2Q19, But Peakish; BUY

  • Still BUY with a new SGD30.30 Target Price from SGD30.80 based on 1.47x 2020F P/BV, 18% upside plus 4.7% FY19F yield.
  • This report spells out our expectations for DBS GROUP (SGX:D05)’ 2Q19 results, which will be released on 29 Jul before trading hours.
  • Expected 2Q19 marginal sequential growth for both loans and NIMs should continue to drive the share price higher.

Mild sequential 2Q19 loan expansion expected.

  • At end-April, management guided for 2019 loan growth in the mid-single digits. We believe business loans expansion could have offset the weak housing mortgage trend. Consequently, we expect DBS to record a ~1% q-o-q loan expansion for 2Q19.

Higher 2Q19 SIBOR should have led to wider NIM.

  • In 2Q19, the 3-month SIBOR averaged 1.98%. This is higher than 1Q19’s 1.92%, which is positive for DBS’ NIM. There is also the lagged effect of a rising SIBOR on the bank’s NIM.
  • Overall, we believe DBS’ 2Q19 NIM could have widened marginally from 1Q19’s 1.88%.
  • Indications point to continued good asset quality, as there is no distress in any particular sector. We believe 2Q19’s NPL ratio should be flattish q-o-q.

Likelihood of a Reserve at end-July.

  • Separately, chair said on Wednesday that “manufacturing, trade, and investment are weak all around the world” also indicated that inflation was too saw his comments as pointing at the US at end-July.

We lower 20202021 NIM assumptions

  • We lower our 20202021 assumptions following chair’s negative is offset by stronger non-II, particularly from the wealth management segment, as trading could pick up with stimulation from the interest rate cuts. Hence, our 2020F and 2021F earnings are both only lowered marginally by 1%.
  • Our long-term ROE assumption is lowered to 13.6% from 13.8% vs 1Q19’s 14%. This factors in revenue growth wealth management digitisation-driven cost.

DBS continues to be attractively priced

  • DBS continues to be attractively priced, with a FY19F yield of 4.7% – sharply higher than the 10-year Singapore Government Bond yield of 1.98% – and a P/BV (2020) of 1.24x, ie close to the 6-year average of 1.2x.
  • However, with earnings growth seen to persist – mainly driven by non-II and cost efficiencies – we have a target P/BV of 1.47x, and keep our call.

Leng Seng Choon CFA RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-07-12
SGX Stock Analyst Report BUY MAINTAIN BUY 30.300 DOWN 30.800