DBS Group - Phillip Securities 2019-11-12: Substantial Provisioning Overlay To Cushion Credit Risks

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

DBS Group - Substantial Provisioning Overlay To Cushion Credit Risks

  • DBS GROUP (SGX:D05)'s 3Q19 revenue and PATMI exceeded our estimates by 4% and 7% respectively.
  • NII supported by 4bps y-o-y NIM expansion to 1.90% as loans were repriced with higher interest rates in Singapore and Hong Kong. Loans growth softer at 4% y-o-y.
  • Fee income at a record high of $814mn. Strong trading income growth of 22% to $431mn due to higher gains in interest rate activities.
  • CIR% well contained, improving 2p.p. from a year ago to 42%.
  • Declared a quarterly dividend of 30 cents per share. We forecast 2019 dividend of $1.20/share. See DBS Dividend History.
  • Maintain ACCUMULATE at a lower target price of S$27.30 (previous Target Price: S$27.60). Our Target Price is based on target price-to-book of 1.4x, derived from the Gordon Growth model (long term ROE assumption: 12.4%, COE: 9.3% (Beta: 1.2x), Growth: 2.0%).



The Positives


NIM held up at 1.90%.

  • NIM expanded 4bps y-o-y as assets yield rose 14bps y-o-y (due to stronger hold up of SIBOR and HIBOR, and push-through of loan repricing), outpacing the rise in funding costs of 10bps y-o-y. NIM contracted 1bps q-o-q, reflecting the lower interest rate environment. See DBS Announcements.
  • In view of three rate cuts, DBS expects a softer 4Q NIM with full-year NIM be below guidance and may come in at 1.88% instead of previously expected 1.90%. DBS guided NIM to decline by around 7bps in FY20 from FY19 average NIM.
  • We maintain our FY19e NIM at 1.89% and lower our FY20e NIM forecast by 7bps to 1.82%.

Fee income at a record high of $814mn due to wealth management, card fees and investment banking fees.

  • AUM rose 9% y-o-y to S$241bn as DBS continues to attract net new money inflows from mid-to-ultra high net worth individuals, as well as from the region. The consistent momentum in the wealth management segment will support a more stable income base.

CIR well contained, improving 2p.p. from a year ago to 42%.

  • Positive JAWS resulted in improvement in CIR with well-managed expenses. DBS expects CIR to be weaker in FY20 and a negative JAWS to be likely next year due to low-single-digit income growth expectations while the Group continues to invest in technology and manpower.


The Negatives


Allowances rose 8% y-o-y.

  • Additional general allowances of $61mn taken as a prudent measure given the ongoing political and economic uncertainty. General provisions stood at $2.9bn, of which expected credit loss reserves made up $2.6bn.
  • DBS is at the prudent end of its provisioning policy with a substantial overlay to cushion the portfolio. NPL ratio unchanged at 1.5% while specific allowances of $197mn were 21bps of loans for 3Q19, in line with recent quarters’ levels.

Loans growth soft at 4% y-o-y.

  • Overall loans growth was stable on quarter as growth in non-trade corporate loans and non-housing consumer loans offset by declines in trade loans and housing loans. DBS guided FY20e loans growth to have a similar pace as FY19e’s 4% y-o-y.


Investment Actions


Maintain ACCUMULATE at a lower target price of S$27.30 (previous Target Price: S$27.60).

  • Our Target Price is based on target price-to-book of 1.4x, derived from the Gordon Growth model (long term ROE assumption: 12.4%, COE: 9.3% (Beta: 1.2x), Growth: 2.0%). See DBS Share Price; DBS Target Price.

Dividend yield support.






Tin Min Ying Phillip Securities Research | https://www.stocksbnb.com/ 2019-11-12
SGX Stock Analyst Report ACCUMULATE MAINTAIN ACCUMULATE 27.30 DOWN 27.600



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