DBS Group - Phillip Securities 2019-12-16: Rock And Bulwark

DBS GROUP HOLDINGS LTD (SGX:D05)

DBS Group - Rock And Bulwark

DBS’ decent dividend yield of around 4.5% cushions the stock’s downsides.
30% of DBS’ total loans were derived from Greater China and Hong Kong.
DBS Hong Kong’s loans book has a relatively small consumer loans exposure with the majority anchoring from China’s State-Owned Enterprises.
Consistent momentum in the wealth management segment will support a more stable income base.

Sustained US-China trade tensions and deteriorating global growth outlook paints a sustained dismal outlook for growth.
Muted NIM outlook on the back of three successive interest rate cuts.
Maintain ACCUMULATE with an unchanged target price of S$27.30.

DBS GROUP (SGX:D05) is the largest bank in Singapore by assets and was initially established by the Singapore government to assume industrial financing activities.
DBS offers services including mortgage financing, lease and hire purchase financing, nominee and trustee, funds management, corporate advisory and brokerage. DBS acquired the Asian private banking business of Societe Generale in 2014 and was the only ASEAN bank to be ranked among the world's top 50 private banking brands in 2015.
See DBS Dividend History; DBS Announcements; DBS Latest News.

DBS’ decent dividend yield cushions the stock’s downsides. We forecast dividend yield of 4.5% in FY20e. CET-1 ratio of 13.8% in 3Q19 which is above the regulatory minimum of 9%, provides DPS visibility.
DBS has also doubled its dividends between FY16 to FY18.

As of 3Q19, 30% of DBS’ total loans were derived from Greater China and Hong Kong, as compared to 25% for OCBC (SGX:O39) and 16% for UOB (SGX:U11).
Given the trade war between China and the US as well as the ongoing political instability in Hong Kong, DBS’ larger exposure is a slight negative. However, DBS Hong Kong’s loans book has a relatively small consumer loans exposure with the majority anchoring from China’s State-Owned Enterprises.

Wealth management income for 9MFY19 grew 16% to S$2.36bn from S$2.03bn a year ago, while AUM rose 9% to $241 billion. 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.

The persistent US-China trade tensions and deteriorating global growth outlook paints a dismal outlook for loans growth. DBS guided FY20e loans growth to have a similar pace as FY19e’s 4% y-o-y and we forecast loans growth of 3.9% for FY20e.

On the back of three successive interest rate cuts by the U.S. Federal Reserve, DBS guided NIM to decline by around 7bps in FY20 from FY19’s expected average NIM of 1.88%. We pen in our estimate for FY19e/FY20e NIM at 1.89% and 1.82% respectively.

The new Expected Credit Loss (ECL) model requires banks to make adequate provisions whenever there is deterioration in the macro-environment. We expect credit costs to be slightly elevated next year as the risk of slower global growth and sustained domestic unrest in Hong Kong leads to higher ECL.

Tin Min Ying Phillip Securities Research | https://www.stocksbnb.com/ 2019-12-16

SGX Stock Analyst Report ACCUMULATE MAINTAIN ACCUMULATE 27.300 SAME 27.300