DBS' FY13 earnings were within expectations although its 4Q13 results were slightly dampened by lower non-interest income and higher expenses. It remains positive on 2014 prospects and expects net profit growth to be driven by healthy loan growth, stable NIM and a sustained momentum in non-interest income. Maintain BUY, with our TP revised to SGD19.20 (from SGD19.40).
- FY13 results in line. DBS posted core earnings of SGD802m (-7% q-oq) for 4Q13, while its FY13 core net profit of SGD3.50bn (+4% y-o-y) was within our (SGD3.59bn) and street (SGD3.60bn) estimates. A final dividend of 30 cents per share was proposed (4Q12: 28 cents).
- Results highlights. In 4Q13, core earnings fell 7% q-o-q, largely from: i) lower net fee income (-5% q-o-q) and trading income (-13% q-o-q), and ii) higher expenses (+9% q-o-q) from increased computerisation and seasonal costs. FY13's key positives include: i) strong broad-based growth in non-interest income (+21% y-o-y), ii) decent net interest income growth (+5% y-o-y) and robust 18% y-o-y jump in loans, which cushioned NIM slippage (-8bps y-o-y), iii) stable NIMs since 4Q12, and iv) positive jaws of 3ppt, with costs being well-contained. These were partly offset by higher allowances (+85% y-o-y) as specific provisions normalised while general provisions rose in line with strong loan growth. Absolute NPLs rose 10% y-o-y, with the increase coming mainly from South Asia and South-East Asia (+184% y-o-y; 20% of total NPLs).
- Management guidance. Management expects stable NIM and loan growth of 8-10% (moderated by a 30-35% drop in mortgage applications) for 2014. Asset quality would remain resilient as the tapering of quantitative easing and measures to cool the property sector are unlikely to have a material impact on customers. Management is comfortable with its current strategy of diversifying its funding base by tapping into USD deposits and commercial papers, as this matches the short-term nature of its trade finance flows. It expects healthy fee income growth,supported by a robust pipeline and a sustained business momentum, and the CIR to edge up on plans to invest in digital banking.
- Maintain BUY. We make no material change to our FY14F net profit, but trim our FV to SGD19.20 (target P/BV: 1.35x) from SGD19.40, on finetuning our book value estimates. DBS' current valuation is undemanding at 1.1x P/BV, which is -0.5SD from its historical mean. We continue to like the stock's stronger earnings growth prospects relative to its peers.
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DBS is the largest Singapore bank by assets. It also has significant operations in HK.ong Kong.
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