• DBS (SGX:D05)'s FY19 net profit released this morning was in line with expectations, accounting for 100% and 101% of our and consensus’ forecasts respectively.
• We lowered our sustainable ROE assumption to 12.6% (from 13.3%), in line with 4Q19’s 12.1%, on the back of the softer economic environment following the coronavirus outbreak.
• Keep NEUTRAL with new lower GGM-derived target price of SGD24.80, 2% downside offset by 5% yield, based on 1.25x 2020F P/NBV.

4Q19 Net Profit Rose 14% Y-o-y, But 2020 to be Impacted by Coronavirus

• DBS's 4Q19 net interest income rose 4% y-o-y, despite NIM narrowing 1bp – a key driver for y-o-y net profit growth was net fee and commission income, which rose 17% y-o-y, and accounted for 21% share of total income.
• DBS management guided for 2020 revenue impact of 1-2% on the assumption of the virus being controlled by summer – consequently, we cut FY20F net profit by 9% to SGD5.8bn.

NIM to Narrow in 2020

• 4Q19 NIM of 1.86% was 4bps narrower q-o-q. On the assumption of one federal funds rate cut this year, management guided for FY20 NIM to be 7bps narrower than FY19’s 1.89% – we forecast FY20 NIM of 1.81%.

We Expect Soft FY20 Loan Growth

• 4Q19 loans expanded 4% y-o-y, and was up 1% q-o-q, which is in line with expectations. We forecast FY20 loan growth of a softer 1% as businesses slow their loan demand amid a slowing economic environment.
• DBS will implement a 6-month moratorium on principal repayment for SME property loans in Singapore and HK, and mortgage loans for Singapore retail customers – such loans will not be classified as NPLs.

DBS Expects FY20 Revenue Headwind for Fee Income

• Early indications point to a slowdown in card spending, although DBS said online shopping has grown. DBS guided for FY20 specific provisions to rise by 4-5bps of loans, which amounts to SGD160m, but GP provides cushioning.
• We forecast FY20 NPL ratio of 1.7% (vs FY19’s 1.5%), and raised our FY20F provisions by 5% to SGD989m.

DBS Declared a 4Q19 Dividend of SGD0.33/share

• The scrip dividend scheme will not apply. Ex-dividend date is 7 Apr.
• FY19 total dividend is SGD1.23, vs FY18’s SGD1.20.
• DBS currently offers a FY20F yield of 5% – sharply higher than the 10- year Singapore Government Bond yield of 1.69%. We have a target 2020F P/NBV of 1.25x (vs 5-year average of 1.19x), based on our current estimates.

Source: RHB Invest Research - 13 Feb 2020