DBS - RHB Invest 2019-07-29: NIM Peaking In 2Q19 Despite Wider

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DBS GROUP HOLDINGS LTD (SGX:D05)

DBS - NIM Peaking In 2Q19 Despite Wider

• Downgrade to NEUTRAL from Buy with new SGD28.30 target price from SGD30.30, 5% upside based on 1.37x 2020F P/BV.
• Our long-term ROE assumption of 13.2% vs 1H19’s 13.7% is premised on digitisation-driven cost efficiencies with narrowing NIM.
• DBS (SGX:D05)’s 1H19 net profit accounted for 52% and 53% of our pre-results and consensus FY19F. This report is an update post analyst briefing.

2Q19 net profit rose 20% Y-o-y

• DBS' 2Q19 net profit rose 20% y-o-y, but was down 3% q-o-q. Stronger net trading income (+57% y-o-y) contributed to the growth. 2Q19 NII rose 9% y-o-y as NIM widened and loans expanded. See DBS announcements.
• We raise 2019F net profit by 2% due to the stronger 2Q19 net trading income. However, we cut 2020F and 2021F net profit by 1% and 4% respectively on the back of NIM contraction.

DBS guided for 2019 mid-single digit point NIM improvement.

• DBS' 2Q19 NIM of 1.91% was 3bps wider q-o-q and 6bps wider y-o-y. On the assumption of a FFR cut of 25bps at end-July,
• DBS guided for 3Q19 NIM to be narrower by 1bp q-o-q, with a further 1-2bps q-o-q narrowing in 4Q19. However, given 1H19 NIM strength, 2019 NIM is guided to be wider than 2018’s 1.85%.
• We forecast 2019 and 2020 NIM at 1.88% & 1.86% respectively.

Mid-single digit 2019 loan growth outlook by management.

• DBS guided for some contraction for 1H19. This is at a later date.

Wealth management shows potential.

• DBS' 1H19 wealth management income rose 17% y-o-y, on the back of AUM rising 8% y-o-y to SGD234bn.
• We remain particularly with the expected FFR cuts opportunities for the high net worth individuals.

CIR fell.

• Sequential strength in total income, accompanied by a milder q-o-q growth in expenses, led to 2Q19 CIR falling 0.5ppts q-o-q to 41.7%. Management guided for 2019 CIR at 43%.

Dividend yield to support share price.

• We forecast 2019 tax-exempt dividend of SGD0.30/share. The 4.5% dividend yield should help to support DBS share price.

Our Target Price based on 1.37x 2020F P/BV.

• 2Q19 ROE was 13.4% – higher than 2Q18's 11.8%. Our DBS valuation is 13.2%. This yields a target price-to-2020F book of 1.37x, from which we derive our Target Price of SGD28.30.

Leng Seng Choon CFA RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-07-29

SGX Stock Analyst Report NEUTRAL DOWNGRADE BUY 28.30 DOWN 30.300