• Strong start to FY15, 1Q15 core net profit beat PSR/consensus estimates slightly
• +35% q-q growth in core net profit driven by solid fee income growth and net trading income almost quadrupled q-q
• Loans growth +2% q-q, driven by currency effects and NIM ticked down to 1.69% (-2bps)
• Full impact of SIBOR and SOR increase will be felt in 2Q15, a positive to NIM
• Maintain "BUY” with a revised TP of S$23.00. DBS is best positioned in a rising interest rate environment and we have seen the appreciation of USD and HKD boost come through. DBS remains our top pick in the Singapore Banking sector

How do we view this?

Net interest income and loans growth flat, within expectations . 1Q15 net interest income held up q-q (+1%) and formed 25% of PSR FY15 estimates. Loans growth of 2% qq was due to currency effects (in-line with our earlier sector report). On constant currency terms, loans growth was flat as the decline in trade assets (~S$7bn), lower interbank and securities yield knocked off the otherwise robust growth in regional corporate loans, housing loans and improved yields. Mortgage activities are strengthening as refinancing activities pick up for fixed rate mortgages. FY15 loans growth guided for ~6% ex. currency effects. PSR estimates a 9% y-y growth in FY15 net interest income and 8% loans growth (incl. currency effects).

Stellar quarter for Fees and commission and trading income. Net fee and commission income grew 22% q-q (+10% y-y) despite a slowdown in investment banking fees. Core drivers were loans-related and wealth management business, which boasted a 54%/52% q-q growth. Wealth management fees should continue to perform strongly with increased market activities in Hong Kong which we have observed for April. Hedging activities, favourable positions in rates and FX boosted overall non-interest income.

Net interest margin (NIM) will continue improving. Improved yields on non-trade loans and assets were offset by lower LDR due to trade loan declines as mentioned above. Overall NIM dipped slightly to 1.69 bps. SOR repricing contributed about 3.5bps. We should see the full effect of SIBOR/SOR in 2Q15 and NIM improvement as we had highlighted to our clients earlier this year. Our FY15F NIM of 1.73% (FY14: 1.68%) remains unchanged.

SGD Deposit growth is healthy, CASA ratio improved. CASA ratio has improved to 57.9% vs. 56.9% in 4Q14.

Asset quality remains intact. Non-performing loans (NPL) ratio is flat at a low 0.9%. Specific allowances are expected to be ~18-19bps. We expect credit costs to gradually normalize this year.

Investment Actions

Maintain "BUY” with a revised TP of S$23.00 with a revised P/B on higher ROE and unchanged FY15 estimates. DBS remains our top pick in the Singapore Banking sector.

Source: Phillip Securities Research - 28 Apr 2015