DBS Group - Maybank Kim Eng 2020-02-13: Hitting The Numbers

DBS GROUP HOLDINGS LTD (SGX:D05)

DBS Group - Hitting The Numbers

DBS Group (SGX:D05)’s FY19 core-earnings came in-line with MKE/Street expectations. A strong contribution from non-interest income, especially wealth management & IB, and volume driven interest income were primary contributors.
Provisioning expenses were significantly lower than expected, pointing to sectoral distress being largely absent (notwithstanding a few customer specific issues). We believe the risks here may increase going forward, especially from the Covid-19 epidemic fallout as well as slower growth in key markets.

Given strong provisioning & capital levels, this is unlikely to affect dividend visibility – offering a 5.2% yield.
Post 4Q19 changes, we lower DBS Target Price to SGD28.60. Maintain BUY.

According to management, the Group is expecting a 1-2% revenue impact from the epidemic. 90% of the front line affected sector portfolio (such as airlines, F&B, malls) in Singapore, HK & China are large corporates with sufficient resources to manage the current situation. Smaller corporates and unsecured consumer lending (especially credit cards) may see some pressure.
DBS is offering 6-month principal payment moratoriums for SME and consumer property loans to help ease cash flow pressure. Management plans to introduce more relief measures going forward. Together with a 94% provisioning coverage, we believe DBS is well placed to manage the current environment.
Nevertheless, we estimate credit charges may increase 4bps y-o-y in 2020E and remain elevated in the medium term.

DBS increased quarterly dividend to SGD0.33 (+10%). Based on its dividend policy, this sets a floor going forward, offering SGD1.32 in 2020E. See DBS Dividend History.
We estimate this will only require a 53% payout ratio. Together with strong 14.1% CET1, we believe DBS is in a comfortable positon to deliver strong, defensive dividend visibility.

Lower trading income, weaker NIMs and slower loan growth see us lowering 2020-2021E core-earnings by 2-5%. Our multi-stage DDM (COE 10.3%, 3% terminal) Target Price has been lowered to SGD28.60 (from SGD29.92).
With 13% upside, maintain BUY. See DBS Share Price; DBS Target Price; DBS Analyst Reports; DBS Dividend History; DBS Announcements; DBS Latest News.

Thilan Wickramasinghe Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-02-13

SGX Stock Analyst Report BUY MAINTAIN BUY 28.60 DOWN 29.920