Forecasts raised by 4-5%, TP raised to SGD20. DBS’ 1Q13 results were above expectations - core net profit of SGD950m was 27% of our forecast and consensus on strong fee and trading income momentum. Valuations are still attractive with the stock trading at a FY13F PER of 11.9x relative to 13.0x for peers and a long-term mean of 12.2x. At FY13F P/BV of 1.3x (ROE: 11.0%) vs 1.4x for peers (ROE: 11.7%), we believe DBS’ current valuation is unjustified, given its more favourable outlook. Our TP is raised to SGD20, pegging FY13 P/BV to 1.4x (1.3x previously), in line with peer averages. BUY.

1Q13 core net profit up 2% YoY, +25% QoQ supported by higher non-interest income, which more than offset the increase in credit costs. Core net profit was SGD760m in 4Q12, after stripping out a gain of SGD450m from the sale of its 10% stake in Bank of Philippine Islands. Core net profit jumped 25% QoQ led by seasonally higher trading income as well as a 36% QoQ surge in fee income.

Positives in 1Q13 include: a) healthy loan growth (+6% QoQ, +13% YoY), b) stable NIMs (+2 bps QoQ vs -6 bps for OCBC), c) strong fee income (+25% YoY), d) higher customer income to 48% of treasury income vs 39% in 1Q12, e) higher contributions from Hong Kong (net profit up 17% YoY) on stable QoQ NIMs and f) efficiency improvements which resulted in a lower CIR of 41% in 1Q13 vs 42% in 1Q12. Management guidance includes a) a higher loan growth target of c. 12% vs 10% for the year, driven mainly by trade financing, b) stable NIMs for the rest of FY13, c) lower credit costs in subsequent quarters – the higher charge in 1Q13 included one-offs and d) flat, if not positive, JAWS for the year.

DBS remains our top pick for a) its lower exposure to the property sector and thus lower impact from the expected slowdown in 2H12 property demand, b) better NIM resilience due to liquid SGD balance sheet – 71% SGD LDR, c) turnaround in its HK operations, and d) strong growth in the group’s non-traditional but more profitable businesses eg wealth management, global transaction services and treasury operations.

Source: Maybank Kim Eng Research - 03 May 2013