1Q results beat expectations by a mile, lifted by strong NIM, customer-related non-interest income and lower provisions.

Key positives: Strong NIM rebound, strong fee income, strong credit quality, ample liquidity (73% SGD LDR).

Reiterate BUY. Remains our preferred pick. DBS is well-positioned to benefit from a rising interest rate environment.

Stellar 1Q14 performance

DBS saw 1Q14 core net profit surge to a record high of SGD990m (+23.4% QoQ, +4.2% YoY), far exceeding our and market expectations for SGD850m. A strong rebound in net interest margin (NIM), larger customer-related non-interest income and lower-than-expected specific provisions were some of the positive surprises. These more than offset the decline in market-related income.

Various positives add to cheer; liquidity still strong

1Q14 NIM rose to 1.66% (+5bps QoQ, +2bps YoY) as trade loan pricing and other asset yields improved. Non-performing assets fell 8.9% QoQ to SGD2.73b as one significant exposure was resolved (likely to be from Dubai). However, NPLs in South and Southeast Asia increased 36.3% QoQ. Loan growth (+1.8% QoQ, +13.2% YoY) was broad-based. Fee income hit a record high of SGD510m from continued growth in customer activities, which helped offset the decline in stockbroking and investment banking income and trading income. Liquidity remained healthy. Deposits rose 3.1% QoQ and 14.8% YoY. USD deposits accounted for 75% of the YoY growth. Group LDR stayed stable at 84%. Both SGD and USD LDRs improved to 73% (4Q13: 75%) and 108% (4Q13: 113%), respectively.

Remains our preferred pick

In our view, DBS is the best positioned among the three Singapore banks to take advantage of a rising interest rate environment. We leave our forecasts largely unchanged for now. Reiterate BUY and TP of SGD19.60, based on 14x FY14E EPS.

Source: Maybank Kim Eng Research - 2 May 2014