• 3Q was higher than expected
• Market conditions are challenging
• Cutting FV to S$21.35

DBS Group Holdings Ltd posted higher net profit of S$1066m. Net Interest Income rose 13% YoY and 4% QoQ to S$1813m – a record high. Net Interest Margin (NIM) improved 10bp from a year ago and 3bp from a quarter ago to 1.78%. However, improvement in Net Interest Income was offset by declines in Non-interest Income, which fell 1% YoY and 5% QoQ to S$899m. Management shared hat its total commodities linked exposure amounted to S$21b, and sees no stress in its commodity loans book. Management is expecting loans growth of 5% in 2015 and 6% in 2016. However, we have seen deterioration in market conditions in recent months and we expect this to result in slower corporate activities and higher impairment charges than our earlier estimates. In view of recent market weakness, we have lowered our valuation peg to 1.2x book, bringing our fair value estimate down from S$23.20 to S$21.35. Maintain BUY.

Source: OCBC Research - 2 Nov 2015