DBS GROUP HOLDINGS LTD (SGX:D05)
DBS - Strong 4Q19 Performance, But Outlook Unclear
- DBS (SGX:D05)'s FY19 net profit released this morning was in line with expectations, accounting for 100% and 101% of our and consensus’ forecasts respectively.
- We lowered our sustainable ROE assumption to 12.6% (from 13.3%), in line with 4Q19’s 12.1%, on the back of the softer economic environment following the coronavirus outbreak.
- Keep NEUTRAL with new lower GGM-derived target price, 2% downside offset by c.5% yield, based on 1.25x 2020F P/NBV.
4Q19 net profit rose 14% y-o-y, but 2020 to be impacted by coronavirus.
- DBS's 4Q19 net interest income rose 4% y-o-y, despite NIM narrowing 1bp – a key driver for y-o-y net profit growth was net fee and commission income, which rose 17% y-o-y, and accounted for 21% share of total income. See DBS Announcements.
- DBS management guided for 2020 revenue impact of 1-2% on the assumption of the virus being controlled by summer – consequently, we cut FY20F net profit by 9% to SGD5.8bn.
NIM to narrow in 2020.
- 4Q19 NIM of 1.86% was 4bps narrower q-o-q. On the assumption of one federal funds rate cut this year, management guided for FY20 NIM to be 7bps narrower than FY19’s 1.89% – we forecast FY20 NIM of 1.81%.
We expect soft FY20 loan growth.
- 4Q19 loans expanded 4% y-o-y, and was up 1% q-o-q, which is in line with expectations. We forecast FY20 loan growth of a softer 1% as businesses slow their loan demand amid a slowing economic environment.
- DBS will implement a 6-month moratorium on principal repayment for SME property loans in Singapore and HK, and mortgage loans for Singapore retail customers – such loans will not be classified as NPLs.
DBS expects FY20 revenue headwind for fee income.
- Early indications point to a slowdown in card spending, although DBS said online shopping has grown. DBS guided for FY20 specific provisions to rise by 4-5bps of loans, which amounts to c.SGD160m, but GP provides cushioning.
- We forecast FY20 NPL ratio of 1.7% (vs FY19’s 1.5%), and raised our FY20F provisions by 5% to SGD989m.
DBS declared a 4Q19 dividend of SGD0.33/share
- The scrip dividend scheme will not apply. Ex-dividend date is 7 Apr.
- FY19 total dividend is SGD1.23, vs FY18’s SGD1.20. See DBS Dividend History.
- DBS currently offers a FY20F yield of c.5% – sharply higher than the 10- year Singapore Government Bond yield of 1.69%. We have a target 2020F P/NBV of 1.25x (vs 5-year average of 1.19x), based on our current estimates.
- See DBS Share Price; DBS Target Price; DBS Analyst Reports; DBS Dividend History; DBS Announcements; DBS Latest News.
Leng Seng Choon CFA
RHB Securities Research
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https://www.rhbinvest.com.sg/
2020-02-13
SGX Stock
Analyst Report
24.80
DOWN
25.800
