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DBS gets more 'buys' from research houses

PC Lee
PC Lee • 4 min read
DBS gets more 'buys' from research houses
SINGAPORE (Nov 7): DBS Group Holdings has garnered four “buys” and a “hold” in this compilation of results reviews.
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SINGAPORE (Nov 7): DBS Group Holdings has garnered four “buys” and a “hold” in this compilation of results reviews.

In 3Q18, DBS reported earnings of $1.41 billion which came slightly below Bloomberg consensus of $1.44 billion, but still up 76% y-o-y and 6% q-o-q.

Net interest income rose 15% y-o-y and 2% q-o-q to $2.27 billion. Net interest margin (NIM) improved from 1.73% in 3Q17 and 1.85% in 2Q18 to 1.86% in 3Q18. Non-interest Income rose 2% y-o-y and 13% q-o-q to $1.10 billion.

See: DBS reports 72% higher 3Q net profit of $1.4 bil on record total income

OCBC Investment Research is maintaining its “buy” on DBS. Analyst Carmen Lee says this is a good set of earnings despite the deterioration in market sentiment since May and the challenging mortgage market in Singapore after the cooling measures in July.

With lingering concerns over the impact of a trade war on regional economic growth, Lee expects the operating environment to remain challenging in 2019.

“As valuations for regional peers have come off sharply recently, we are dropping our valuation from 1.6x book to 1.5x book, resulting in a decline in our fair value estimate to $30.83,” says Lee.

UOB KayHian is maintaining its “buy” on the lender with $29.50 target. Analyst Jonathan Koh says DBS Hong Kong’s performance was “stellar”. DBS Hong Kong's NIM expanded by 24bp y-o-y to 1.97% for 9M18 due to a rising HIBOR. Loans expanded 16% y-o-y while fees grew 10% y-o-y. Net profit in constant currency terms expanded 43% y-o-y.

Management has guided for mid-single digit loan growth and continued NIM expansion in 2019, says Koh, however delinquencies for SME loans and unsecured consumer loans are expected to increase, affected by higher interest rates but portfolio is well collateralised.

DBS is the prime beneficiary if US and China conclude a trade deal as Greater China accounted for 26.6% of total assets, adds Koh.

RHB Research is maintaining its “buy” on DBS with $29.80 target. At its results teleconference, management reiterated its bullish stance for 2019 – guiding for further NIM widening from FFR hikes, stable loan growth of mid-single digits and wealth management growth potential.

RHB analyst Leng Seng Choon says DBS’s wealth management segment has indeed done well to offset weaker investment banking. In 9M18, wealth management fees rose 25% y-o-y to $923 million while investment banking recorded a 34% y-o-y decline to $99 million.

Following the addition of 600 staff in wealth management, DBS remains optimistic on future wealth management growth where productivity should rise over the next 2-3 years, says Leng.

Research house Jefferies also has a “buy” with $29.50 target price due to the stock’s attractive 10x FY19E PE multiple and 5% dividend yield.

In 3Q18, loan growth was primarily driven by customer and non-trade corporate loans as trade loans shrunk due to unattractive pricing, says analyst Krishna Guha who is keeping its loan growth estimate unchanged at 7%.

However, margins are expected to increase due to lagged re-pricing of loan book and pass-through of future US rate hikes although further appreciation of MAS SGD NEER could lower them.

Finally, CGS-CIMB Securities would rather keep DBS at “hold” as valuation is still above mean at 1.3x FY18F book value and it waits for NIM to increase further as pass-through of loan repricing takes effect.

Analyst Lim Siew Kee notes 3Q18 loan growth was more moderate at 0.7% q-o-q compared to 3.0% in 2Q18. “We now tone down our expectations of loan growth to 6.3% from 6.9% previously. YTD 9M18 loan growth was 5.3%,” says Lim.

Although asset quality remained healthy, Lim notes total NPA had edged up to $5.90 billion on weaker recoveries. Risks from Greater China are relatively contained with the bank identifying less than 20 names that need watching.

Year to date, shares in DBS are down 8% to $23.81.

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