DBS reported 1Q17 net earnings of S$1.21m this morning, up 1% YoY or 33% QoQ, and higher than consensus estimates of S$1.12b as polled by Bloomberg. Including one-off items, net profit was S$1.25b.

While Net Interest Income was flat, Non-interest Income improved QoQ and YoY, and this was largely due to better Fee & Commission Income as well as higher Net Income from Investment Securities.

Allowances remained elevated at S$550m this quarter, up from S$462m in the previous quarter. Net Interest Margin (NIM) improved from 1.71% in the last quarter to 1.74% this quarter. NPL ratio stayed flat at 1.4% QoQ.

In terms of outlook, management has guided for mid-single digit loans growth, and expects NIM to be at 2016 average if rate assumptions materialise. It expects cost-income ratio to hold at 43% (43.2% in 1Q17).

It also guided for NPL formation to moderate from 2016 level; and expects total allowances to be similar to 2016, ex Swiber (total allowances in 2016 amounted to S$1434m).

We will review our estimates and fair value after the analysts’ briefing later on. For now, we put our HOLD rating and fair value estimate under review.

Source: OCBC Research - 2 May 2017