Towards Financial Freedom
DBS - FY13 Earnings Broadly In Line
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.
Financial Exhibits
SWOT Analysis
Company Profile
DBS is the largest Singapore bank by assets. It also has significant operations in HK.ong Kong.
DBS is the largest Singapore bank by assets. It also has significant operations in HK.ong Kong.
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Source: OSK
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