BUY. DBS’ 2Q13 results were within our expectation and consensus and our forecasts are maintained. That the Danamon deal is off is a setback for the group but it does clear a large overhang issue on the stock. Near-term prospects remain robust and the group is wellpositioned to ride steepening yields/rising interest rate trends. We maintain our BUY on DBS with an unchanged TP of SGD20, pegged to a rolled forward 2014 P/BV 1.3x (1.4x previously) on factoring in higher market volatility risk.

Danamon deal is off due mainly to control issues. Management nevertheless remains confident of driving 10-11% topline growth per annum from existing businesses and strategies, and will also focus effort on expanding PT DBS Indonesia more aggressively.

2Q13 net profit growth up 9.5% YoY driven primarily by strong noninterest income growth. Positively, loan growth remained robust at 14% YoY while NIMs were stable (-2 bps) QoQ. Moreover, the group is seeing very decent traction in Hong Kong. On the flip side, non-interest income slipped on capital market volatility, but this was as expected. Asset quality showed some stress (mainly out of India) but NPL levels remain benign. Key guidance for the year include a) loan growth of 14% YoY, b) stable NIMs at around 1.6% and c) normalized specific provision credit costs of 22 bps.

Investment portfolio duration shortened and currently averages about four years. Management takes the view that the yield curve will continue to steepen but having shortened the duration of the portfolio, the bank is now in a strong position to capitalize on this uptrend.

No major negative impact from domestic property market expected. According to management, 92% of DBS’ mortgagees do not have a mortgage outside of the bank and 96% of its mortgagees have only one mortgage loan.

Source: Maybank Kim Eng Research - 2 Aug 2013