Net  profit  7%  above  expectations.    DBS'  3Q12  net  profit  of  S$856m  was  up 12%  YoY,  and  up  6%  QoQ.  This  is  slightly  above  consensus  and  our expectations  of  S$801m  and  S$800m  respectively,  largely  due  to  lower-than-expected  provisions.  NIM  was  squeezed  and  loans  contracted  sequentially.  We expect continued narrow  NIM and  soft loan expansion going forward. Our  TP  of
S$14.83 is pegged to 1.13x 2013 FD book (a discount from the historical norm of 1.31x, due to the likely slowing loan growth trend). Given the uncertainties of the Danamon acquisition, our model does not factor in the acquisition. DBS remains NEUTRAL.
 
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$2.7b  QoQ.  The  sequential  loan  weakness  is  largely due to the general commerce segment, as China trade finance loans mature.  In currency  terms,  S$  loans  expanded  4%  QoQ.  Underlying  US$  loans  contracted 2% QoQ, although it was a worse 5% decline in S$ terms. We forecast 2012 loan growth of 9%, close to management guidance. This is sharply lower than 2011's 28%.  We  believe  the  loan  weakness  will  adversely  affect  investors'  interest  in DBS.

Investment banking drove fee and commission income. Fee and commission income  was up 12%  QoQ  (+4%  YoY),  largely  driven  by  investment banking  and loan-related  activities.  Debt  capital  market  and  REITs  activities  were  the  key factors for the growth in investment banking.   Net trading income of S$137m was relatively flat both on a QoQ and YoY basis.

Post  results  release,  we  raised  our  2012F  net  profit  by  3%  to  S$3.83b,  largely due  to  lower  provision  forecast.  This  includes  the  one-time  gain  from  partial divestment of BPI stake.

 Source: OSK