Towards Financial Freedom
DBS - Sequential loan contraction may dampen interest
Net profit 7% above expectations. DBS reported 3Q12 net profit of S$856m, up 12% YoY, and up 6% QoQ. This is slightly above consensus and our expectations of S$801m and S$800m respectively. Whilst profit before allowances was up a marginal 3% QoQ, a 47% or S$49m QoQ plunge in allowances led to the above-expectations net profit. As such, we do not believe the market will respond positively to the slightly stronger earnings. We will review our earnings forecast and target price after the analyst briefing later today. We do not see any catalyst that will drive DBS share price higher after the ~21% YTD share price rise. Our NEUTRAL recommendation is maintained.
Weak net interest income from NIM squeeze and US$ loan weakness. Net interest income was up 1% QoQ, despite NIM declining 5 bps QoQ to 1.67%, and loans contracting 1% or S$2.7b QoQ. The sequential loan weakness is largely due to the general commerce segment, which recorded a 4.2% or S$1.6b sequential fall - recall that DBS recorded very strong trade finance loans in 2H11, and this recent result suggest that some reversals are taking place. In currency terms, S$ loans expanded 4% QoQ. Underlying US$ loans contracted 2% QoQ, although it was a worse 5% decline in US$ terms. We believe the loan weakness will adversely affect investors' interest in DBS.
Investment income drove fee and commission income. Fee and commission income was up 12% QoQ (+4% YoY), largely driven by investment banking and loan-related activities. Net trading income of S$137m was relatively flat both on a QoQ and YoY basis.
Unchanged cost-income ratio. The cost-income ratio of 45% is close to 2Q12's 44.8%. Expenses rose 3% sequentially due to higher staff and other general expenses and were partially offset by a fall in revenue-related costs.
Source: OSK
Weak net interest income from NIM squeeze and US$ loan weakness. Net interest income was up 1% QoQ, despite NIM declining 5 bps QoQ to 1.67%, and loans contracting 1% or S$2.7b QoQ. The sequential loan weakness is largely due to the general commerce segment, which recorded a 4.2% or S$1.6b sequential fall - recall that DBS recorded very strong trade finance loans in 2H11, and this recent result suggest that some reversals are taking place. In currency terms, S$ loans expanded 4% QoQ. Underlying US$ loans contracted 2% QoQ, although it was a worse 5% decline in US$ terms. We believe the loan weakness will adversely affect investors' interest in DBS.
Investment income drove fee and commission income. Fee and commission income was up 12% QoQ (+4% YoY), largely driven by investment banking and loan-related activities. Net trading income of S$137m was relatively flat both on a QoQ and YoY basis.
Unchanged cost-income ratio. The cost-income ratio of 45% is close to 2Q12's 44.8%. Expenses rose 3% sequentially due to higher staff and other general expenses and were partially offset by a fall in revenue-related costs.
Source: OSK
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