Integrating Retail Brokerage Will Improve Cost-income

• The Business Times has reported that DBS GROUP HOLDINGS LTD (SGX:D05) will be transferring retail equity trading to the bank, leaving its equity-brokerage business – DBS Vickers – focusing just on institutional clients.
• DBS is looking to drive retail equity trading online from the traditional remisier model, with significant investments in technology. This should lower costs and accelerate scaling. Together with multi-product, integrated advisory services as opposed to higher-cost single-product-specialist services, cost-to-income can be better managed, in our view. These moves are consistent with DBS’ intention to return to its commercial-banking roots to develop interest and wealth-management income.
• No change to our EPS or GGM-based Target Price of SGD29.56 With rising ROEs and yields of 5.5%, maintain BUY.
• DBS remains our top pick.

Traditional Trading: High Costs, Low Returns?

• In our view, the traditional retail broking business which uses self-employed remisiers is declining. Retail-trading customers have been shifting to self-directed online trading.
• The remisier pool is itself dwindling from competition from fast-growing wealth-management opportunities. Maintaining high-cost back-end systems to support traditional trading vs low-cost, quickly-scalable online platforms is becoming untenable, in our view.

Integrated Products Should Help Lower Costs

• We believe DBS’ move will enable it to offer multi-asset products through an integrated platform to a larger customer base.
• We expect a wider range of sophisticated products being offered across its customer spectrum under wealth management. This should enable the group to lower costs vs single-product specialists such as retail stock brokers and maximise customer returns.

Rising ROEs & Dividend Yields; Top BUY

• While brokerage only contributes 5-6% to fee income, the current move marks further execution of a return to commercial banking – by maximising sustainable income and managing costs. This should support rising ROEs and 5.5% prospective yields.
• Maintain BUY and top sector pick.

Source: Maybank Kim Eng Research - 21 Feb 2019