SINGAPORE (Feb 9): OCBC and CIMB are maintaining their "buy" calls on DBS Group with target prices of $29.50 and $29.00 respectively.

The final quarter’s performance was led by an increase in wealth management and higher unit trust and other investment product sales. In addition, Investment Banking also saw a doubling in fees from higher equity market and fixed income activities.

4Q17 core net profit jumped 33% y-o-y to a quarterly record of $1,.2 billion, underpinned by higher NII, higher fees and lower net allowances. On a q-o-q basis, 4Q17 allowances also came off 72% to $225 million from $815 million.

The highlight for the quarter was the declaration of a final DPS of 60 cents/share, bringing full-year DPS to 93 cents, as well as another special DPS -- or CNY angbao according to OBC -- of 50 cents to mark the 50th anniversary of DBS.

In a Thursday report, <strong>OCBC</strong> says DBS management is upbeat about the outlook for 2018. The bank currently has a 30.8% share of the Singapore mortgage market, buoyed by the improving outlook for the Singapore residential market in recent months.

Wealth is another growth pillar and this will leverage on its current and still growing AUM of $206 billion. For 2017, wealth income grew 25% to $2.1 billion. The bank is also continuing with its push to digitalise its business and gain market share.

Management is guiding for loans growth of 7-8% and for margin improvement due to a more favourable interest rate environment for banks. It also expects to maintain its cost-income ratio at 43%. Dividend payout will go up to $1.20 in 2018.

"At $25.36, the stock is offering dividend yield of about 4.7%. Our fair value estimate remains unchanged at S$29.50. DBS remains our pick in the sector," says DBS analyst Carmen Lee.

In a Thursday report, <strong>CIMB</strong> analyst Yeo Zhi Bin says DBS various operational metrics including mortgage, cards, wealth, SME lending, cash management, trade demonstrate broad-based growth for the group.

Yeo notes the record quarter was driven by higher NII, higher fees and lower net allowances. For FY18, CIMB is remaining positive on DBS on rate-hike-tailwind, higher loans and fee income, lower credit costs and increased returns to shareholders.

Better still, 4Q total allowances declined 51% y-o-y to $225 million as specific provisions normalised to 25bp of loans. New non-performing assets declined q-o-q to $362 million, with NPL ratio stable at 1.7%. No further charges were taken for O&G support services after the accelerated recognition of residual O&G exposures as NPAs in 3Q.

DBS estimates that Basel final rules has limited capital impact – risk-weighted assets (RWA) is expected to only increase by about 5% by 2022. As such, other than the increased payout and special dividend, it has also suspended its scrip dividend with immediate effect. With earnings growth, Yeo expects DPS of $1.20 to be sustained.

"We increase our FY18-19 EPS by 4-4.1% on higher NII and fee income growth. Accordingly, our GGM-based target price also increased to $29.00, implying 1.5 times FY18 book value or 11.6 times FY19 earnings," says Yeo.

As at 11.11am, shares in DBS are down 48 cents at $26.23.

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