• Keep BUY with a higher SGD30.80 Target Price from SGD29.60 based on 1.50x 2020F P/BV, 12% upside plus 4.4% FY19F yield.
• Our long-term ROE assumption of 13.8% vs 1Q19 and 1Q18’s 14% and 13.1% is premised on further NIM expansion in 2Q19 from 1Q19’s 1.88% plus digitisation-driven cost efficiencies.
• DBS’ 1Q19 results are in line with our expectations. This report is an update post the bank’s analyst teleconference.

Results Are in Line With Expectations

• DBS GROUP HOLDINGS LTD (SGX:D05)'s 1Q19 net profit of SGD1.65bn was up 9% y-o-y (+25% q-o-q) – representing 27% of our pre-results and consensus’ FY19 expectations.

DBS Guides for 5-6bps NIM Expansion in 2019

• DBS Group's Q19 NIM of 1.88% was 1bps wider q-o-q and 5bps wider y-o-y. Asset yields rose 8bps q-o-q, whilst cost of funds climbed 7bps q-o-q.
• Management maintained expectations of 2019 NIM expansion, guiding for a 5-6bps widening from 2018’s 1.85%. DBS Group indicated 60% of loans reprice in the first year of interest rate (eg SIBOR) rise, but another 40% reprice within the next two years. We forecast 2019 NIM of 1.90%.
• DBS Group has maintained its Singapore home mortgage market share at 31% despite housing loans declining 1% q-o-q. Management guided for SGD1-1.5bn of mortgage growth for 2019 vs a SGD1.7bn rise in 2018.
• The non-trade corporate lending pipeline remains strong. DBS Group maintained its 2019 loan growth guidance of mid-single digits – our forecast: 5% expansion.

Wealth Management Fees Surged QoQ

• Wealth management, brokerage, and investment banking fee income fell 12% y-o-y due to a high 1Q18 base from an exceptionally buoyant market sentiment during that period. However, on a sequential basis, wealth management fee income rose 44% from a recovery in market sentiment.

Our Long-term ROE Assumption Is 13.8%

• DBS Group's 1Q19 ROE was at 14% – the highest in more than a decade. It was even higher than 1Q18's 13.1%. Management guided that a 13% short-term ROE may be likely. We have assumed 13.8% long-term ROE, as we factor in gains from DBS Group’s digitisation efforts.
• Effective from FY19, the bank will pay dividends four times a year instead of two – this is to provide shareholders with more regular income streams. For 1Q19, DBS Group declared a dividend of SGD0.30/share.
• Downside risks to our forecasts include higher impairment charges and al funds rate, which could dampen NIM.

Source: RHB Invest Research - 29 Apr 2019