DBS & OCBC - CGS-CIMB Research 2020-11-05: Earnings Beat From Trading & Impairments


DBS & OCBC - Earnings Beat From Trading & Impairments

DBS’s results beat expectations due to treasury income

  • DBS (SGX:D05)'s 3Q20 net profit of S$1.3bn (+4% q-o-q, -20% y-o-y) surpassed our/consensus estimates by 16%/24%. See DBS Announcements. We projected S$1.1bn. 9M20 net profit formed 91%/82% of our/consensus forecasts. Treasury income of S$608m (-18% q-o-q, +11% y-o-y) was above our S$470m. Interim DPS is S$0.18 for 3Q20, bringing 9M20 DPS to S$0.69 vs. FY20F guidance of S$0.87. A scrip dividend scheme is applied to 3Q20 dividends. See DBS Dividend History.
  • NIM slid 9bp to 1.53% in 3Q20 (2Q20: 1.62%) as benchmark rates collapsed following the Fed rate cuts in Mar 20. In tandem, NII slipped 6% q-o-q. Fee income rebounded to pre-COVID-19 levels (+17% q-o-q, -2% y-o-y), mainly aided by wealth and credit card segments. Although wealth management recovered strongly to S$380m (+25% q-o-q, +6% y-o-y), card fees of S$160m (+25% q-o-q) were still 11% weaker y-o-y.
  • DBS’s credit costs were broadly in line with expectations at 58bp in 3Q20 (2Q20: 89bp). These comprised 31bp in loan special provisions (SP), 23bp in general provisions (GP) and 2bp of SP for other exposures.
  • Guidance for total allowances of S$3bn-5bn in FY20-21F is maintained, with S$2.5bn taken in 9M20. DBS expects FY21F allowance to be lower than in FY20F. We believe overall NPA formation will rise as government relief expires. NPL ratio was slightly weaker at 1.6% (2Q20: 1.5%).
  • Loans contracted 0.9% q-o-q in 3Q20 (2Q20: -1.5% q-o-q) as further drawdowns of non-trade corporate loans were offset by repayments of short-term facilities made in 1H20. Loans under moratorium increased marginally for corporates but was unchanged for consumers. Increase in corporate book is mostly secured. LDR was stable at 83%. CTI rose to 43% (2Q20: 39.8%). 3Q20 ROE: 10% (2Q20: 9.8%). CET-1: 13.9% (2Q20: 13.7%).
  • See DBS Share Price; DBS Target Price; DBS Analyst Reports; DBS Dividend History; DBS Announcements; DBS Latest News.

OCBC beat on lower credit costs; no M&A plans under review

  • OCBC (SGX:O39)’s 3Q20 net profit of S$1.03m (+41% q-o-q, -12% y-o-y) beat our/consensus estimates of S$841m/S$901m by 22%/14% due to lower credit costs (52bp) vs. our anticipated 67bp. 9M20 net profit formed 70%/76% of our/consensus forecasts. See OCBC Announcements.
  • NIM fell 6bp q-o-q to 1.54% (2Q20: 1.60%), better than our expected -8bp. NII dipped 3% q-o-q and 11% y-o-y. Trading income was weaker at S$255m (2Q20: S$325m), offsetting some of the fee income strength (+14% q-o-q, -9% y-o-y). PPOP of S$1.4bn (- 5% q-o-q, -5% y-o-y) was 8% ahead of our estimate.
  • Impairments of S$350m (vs. our expected S$450m) came up to 52bp of credit costs. 22bp were loan SP, 30bp were GP and 2bp were SP for other exposures. Credit cost guidance was unchanged at 100-130bp over FY20-21F and for NPL ratio at 2.5-3.5%. NPL was unchanged at 1.6% (2Q20: 1.6%).
  • OCBC's 3Q20 loan growth was flattish at 0.4%. Loans under moratorium decreased slightly from 10% (Jul 20) to 9%. LDR was slightly higher at 86.2% (2Q20: 85.4%, FY19: 86.5%) For non-II, wealth income was stronger q-o-q at S$252m (+23% q-o-q, -5% y-o-y). AUM under BOS rose to US$116bn (+3% q-o-q, +5% y-o-y). Treasury income was weaker at S$312m (-15% q-o-q, +32% y-o-y) due to lower MTM gains in GEH’s investment portfolio.
  • Insurance income of S$264m was stable q-o-q as GEH recorded stronger q-o-q total weighted new sales (TWNS) of S$433m (+51% q-o-q, +36% y-o-y) and improved new business embedded value (NBEV) of S$160m (+47% q-o-q, +2% y-o-y).
  • OCBC's CTI was broadly stable at 43.2% in 3Q20 (2Q20: 42.2%). 3Q20 ROE was 8.7% (1H20: 6.1%, FY19: 11.4%). 3Q20 CET-1 was 14.4% (2Q20: 14.3%).
  • Management guides that there are no M&A plans under review.
  • See OCBC Share Price; OCBC Target Price; OCBC Analyst Reports; OCBC Dividend History; OCBC Announcements; OCBC Latest News.

Andrea CHOONG CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2020-11-05
SGX Stock Analyst Report HOLD MAINTAIN HOLD 20.460 SAME 20.460