Highlights

Simons Trading Research

Author: simonsg   |   Latest post: Fri, 17 May 2019, 2:55 PM

 

DBS - Riding on Widening NIM

Author:   |    Publish date:


  • We keep our BUY call and Target Price of SGD29.80 offering 25.2% upside, plus 5.00% FY19F yield.
  • Management recently 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.
  • We derive our Target Price on assuming long-term ROE of 13.8%, which could be achievable based on management’s guidance of ~13 2019F ROE.
  • Widening NIM is the catalyst to drive DBS’ share price higher.

Expect NIM to Widen Over the Next Few Quarters

  • DBS’ 3Q18 NIM of 1.86% was 1bp wider q-o-q. Towards end-3Q18, exit NIM was 1.86%, and management guided for 4Q18 NIM of 1.86-1.87%, with more widening in 2019 from lagged effects of SIBOR increases (45% of Singapore loans are booked off SIBOR).
  • We forecast 2018-2019 NIMs of 1.86% and 1.92%, premised on the trend of higher interest rates – we forecast end-2019 3-month SIBOR of 2.3%, higher than the current 1.77%, even after factoring in the US Fed chairman’s more dovish 28 Nov speech.

Management Guided for Mid Single-digit 2019 Loan Expansion

  • DBS’ 3Q18 loans were 1% higher q-o-q, with trade loans being a drag as yields are unattractive.
  • Management sees a SGD2.5bn mortgage loan growth as likely for 2018 – the group has a 31% share of the Singapore housing loan market.
  • Management guides for mid single-digit 2019 loans growth, as trade loans are seen to remain weak. We forecast overall 2019 loan growth of 6%.

Wealth Management Strength to Persist

  • DBS’ 9M18 wealth management fees rose 25% y-o-y (to SGD923m), whilst investment banking recorded a 34% y-o-y decline (to SGD99m). DBS is optimistic on future wealth management growth, following the addition of 600 staff in wealth management – an area where productivity should rise over the next 2-3 years.

Our Long-term ROE Assumption Is 13.8%

  • This is on track, as evident from management’s guidance of 13% by 2019 (from 9M18’s 12.4%). Our CoE assumption is 10%, yielding a target P/BV of 1.54x, which is applied to our 2019F BV to derive our SGD29.80 Target Price. We believe the premium over its 5-year historical average P/BV of 1.2x is justified, given the rising NIM trend.
  • During the previous FFR upcycle between mid-2003 and mid-2007, the FFR rose to > 5% from 1%. For that duration, DBS’ P/BV correspondingly rose as high as 1.9x from 1x. The bank now trades at only 1.2x 2019F book, and our target P/BV is set at 1.54x.
  • Maintain BUY, with SGD29.80 Target Price.
  • Downside risks to our forecasts include higher impairment charges and weaker NIM.

Source: RHB Invest Research - 14 Dec 2018

Share this
Labels: DBS

Related Stocks

Chart Stock Name Last Change Volume 
DBS 25.19 0.00 (0.00%)

  Be the first to like this.
 


 

1101 

ActiveGainersLosers
Top 10 Active Counters
 NameLastChange 
 Powermatic Data 1.600.00 
 NX09100W 190601 90.000.00 
 NY09100H 240901 109.9520.00 
 Tai Sin Electric 0.320.00 
 3Cnergy 0.0060.00 
 KLW 0.0020.00 
 AsiaMedic 0.0130.00 
 Fuji Offset 0.270.00 
 Hiap Seng^ 0.0850.00 
 DEKW 0.3650.00 
Partners & Brokers