• DBS GROUP HOLDINGS LTD (SGX:D05)'s 1Q19 earnings beat expectations on net trading income surging 93% q-o-q and credit cost of 9bp. 1Q19 net profit of S$1.65bn was 14% above our estimate.
• Net trading income came in strong at S$443m vs. our expected S$290m. Wealth management was S$315m, slightly above our expected S$296m.
• Maintain ADD and our GGM-based Target Price of S$29.00. We forecast positive DBS share price movement from this set of results.

DBS’s 1Q19 Earnings Beat Expectations Due to Higher Net Trading Income and Provision Write-back

• DBS’s net profit of S$1.651bn in 1Q19 was 14% above our expectation of S$1.45bn and 11% above consensus (S$1.49bn). 1Q19 formed 28%/27% of our and consensus full-year forecasts. Our EPS estimates are unchanged.
• Net trading income soared 93% q-o-q and 20% y-o-y to S$443m, above our expectations of S$290m. Wealth management recorded an impressive 44% q-o-q jump to S$315m, slightly above our expected S$296m.
• Credit costs improved to 9bp vs. average 21bp in FY18. This was mainly due to a S$100m general provision write-back amid better portfolio credit quality. SPs for NPLs were also lower.

NIM and Loan Growth Within Expectations

• DBS's 1Q19 NIM rose 1bp to 1.88%, on track towards its 4-5bp FY19 target. The 1bp NIM improvement came mainly from Singapore.
• Loan growth was 1% in 1Q19; we projected 1.3%. This was mainly driven by Singapore and Rest of Greater China.
• LDR stayed flattish q-o-q at 87.9%, with Sg deposits staying flat q-o-q but US$ deposits inching up 1% q-o-q, fuelled mainly by FDs.

CTI Dropped to 42.2%, Thanks to Higher Income

• Total income rose 9% q-o-q and 6% y-o-y to S$3.4bn. Pre-provision profit climbed 18% q-o-q and 5% y-o-y to S$2bn.
• As a result of higher income, CTI dropped to 42.2% vs. average of 44% in FY18. Expenses remained flat q-o-q at S$1.5bn.

ROE Up to 14%; Maintain ADD and Target Price of S$29.00

• DBS's ROE improved q-o-q to 14% in 1Q19 (4Q18: 11%, FY18: 12%) and CET-1 ratio was 14.1% (4Q18: 13.9%, FY18: 13.9%).
• There was no change in management’s general guidance but the bank will be revising its dividend frequency to 4 times a year (vs. 2 times) beginning FY19.
• DBS's 1Q19 dividends amounted to S$0.30/share (consistent with FY18's S$1.20/share).

Source: CGS-CIMB Research - 29 Apr 2019