• DBS delivered a big bag of positives this quarter again. 3Q14 net earnings of S$1b was 8.4% higher q-q, beating our expectations by ~6%
• Key positives were steady loans growth, stable NIM uptick, strong fee income, high net trading income and robust asset quality
• Maintain and reiterate "Buy”, with a revised TP of S$21.60 based on a P/B
• 1.4X and FY15E BVPS of S$15.45 as we roll over our valuation. DBS remains our top pick in the Singapore Banking sector.

What is the news?

DBS Group Holdings announced its 3Q14 results on 31 Oct 2014. DBS reported a net profit of S$1b, with 9M net adjusted earnings at a record high of S$3b, beating our expectations. The bottom-line growth of 8.4% q-q in our opinion is one that was driven by a big bag of positives that is a testament of DBS’s franchise.

Key positives for 3Q14 were:

1. Steady loans growth – Loans growth of 2% q-q (8% y-y) was led by corporate and SGD consumer loans.
2. Stable NIM uptick – Net interest margin was stable, climbing 1bps to 1.68%, the highest in 9 quarters. Average asset yields and funding costs remained stable but we see higher average yields on their trade assets
3. Strong fee income – Net fee and commission income grew 10% q-q (20% yy) driven by stable wealth management income and a 81% growth in investment banking fees
4. High net trading income – Net trading income increased 54% q-q (44% y-y) from higher trading gains (FX and I/R) and steady treasury customer flows
5. Robust asset quality – NPL ratio remains at a low 0.9%. Uptick in Greater China NPA is largely due to an isolated case in Taiwan which was affected by the Kaoshsiung gas explosion in end July

How do we view this?

DBS has beat PSR and consensus expectations again. In our view, DBS has delivered yet another quarter of strong results which were driven by high quality factors. We had initially expected NIM of 1.64% but 9M14 NIM was stable at 1.67%, hence we adjust our FY14E NIM accordingly. Management has indicated that they have been able to hold up pricing which is reflected in the higher average trade loan yields. We think liquidity is ample with overall LDR at 85.8% and SGD LDR at 77.6%. CASA ratios are healthy at 55.4%.

We had previously been positive on their strong deal flow pipeline and DBS has delivered this quarter with the 81% jump in investment banking fees. We tweak our FY14E/FY15E core EPS up slightly (~3%/4%) and our other estimates are largely unchanged. DBS remains our top pick for its robust and disciplined trade finance business, strong deal flow pipeline, diversified franchise and best positioning to benefit from an interest rate cycle revival in the medium term.

Investment Actions?

We tweak our forecasts for FY14E/FY15E core EPS up slightly and based on our FY15 BVPS of S$15.45 and a P/B of 1.4X, we derive a new target price of S$21.60 as we roll over our valuation. Based on DBS’s potential to outperform, we maintain and reiterate our “Buy” rating.

Source: Phillip Securities Research - 3 Nov 2014