DBS posted better-than-expected 2Q14 net earnings of S$969m, resulting in 1H14 earnings of S$2200m, up 20%. Net Interest Margin (NIM) showed an improvement, up a modest amount from 1.62% in 2Q13 and 1.66% in 1Q14 to 1.67% in 2Q14. DBS has declared a 1H dividend of 28 cents, unchanged from the 1H13. Management is positive about the outlook for the rest of the year, and has guided for Net Interest Margin (NIM) to stay around 1.65% for this year. It also provided details of its total exposure to China (S$50b), but sees no stress in its loans book as well as for its China trade and non-trade loans. Taking into account the more optimistic guidance from management, we have raised our earnings estimates for the rest of the year. Based on 1.4x book, we upped our fair value estimate from S$18.08 to S$19.90. DBS remains a BUY and our top pick in the banking sector.
NIM margin showed slight improvement
DBS delivered 2Q14 net earnings of S$969m, higher than consensus estimate of S$938m (based on Bloomberg). This led to 1H14 earnings of S$2200m, up 20%. At the net earnings level, there was a QoQ drop in 2Q14 net earnings largely because of the one-off item in 1Q14. Net Interest Margin (NIM) showed an improvement, up from 1.62% in 2Q13 and 1.66% in 1Q14 to 1.67% in 2Q14. Net Interest Income showed both good YoY and QoQ growth to S$1557m in 2Q14. DBS has declared a 1H dividend of 28 cents, unchanged from the 1H13.
Management is positive on the outlook; NIM to be around 1.65%
Management is positive about the outlook for the rest of the year despite certain geopolitical risks and an expected slowdown in China. It has guided for Net Interest Margin (NIM) to stay at around 1.65% for this year. It also provided details of its total exposure to China amounting to S$50b. Total traded-related exposure is S$36b. Of this, the bulk is export bills LC. It further reassured that only LCs from top tier banks is accepted. For the remaining S$14b, the bulk of the non-trade loans are to key domestic state-owned companies and foreign companies based in China. Management sees no stress in its loans book as well as for its China trade and non-trade loans. In addition, it has no exposure to Qingdao commodity financing. It expects cost-to-income ratio of about 45% for this year.
Raising FV to S$19.90; DBS remains our top pick
Taking into account management’s positive guidance for its business, both in terms of funding as well as its exposure, we have revised up our estimates for the rest of the year. We have increased FY14 net earnings from S$3785m to S$3886m. In addition, we are also using a higher valuation metric to reflect the more optimistic outlook and based on 1.4x book, we increased our fair value estimate from S$18.08 to S$19.90. DBS remains a BUY and our top pick in the banking sector.
DBS delivered 2Q14 net earnings of S$969m, higher than consensus estimate of S$938m (based on Bloomberg). This led to 1H14 earnings of S$2200m, up 20%. At the net earnings level, there was a QoQ drop in 2Q14 net earnings largely because of the one-off item in 1Q14. Net Interest Margin (NIM) showed an improvement, up from 1.62% in 2Q13 and 1.66% in 1Q14 to 1.67% in 2Q14. Net Interest Income showed both good YoY and QoQ growth to S$1557m in 2Q14. DBS has declared a 1H dividend of 28 cents, unchanged from the 1H13.
Management is positive on the outlook; NIM to be around 1.65%
Management is positive about the outlook for the rest of the year despite certain geopolitical risks and an expected slowdown in China. It has guided for Net Interest Margin (NIM) to stay at around 1.65% for this year. It also provided details of its total exposure to China amounting to S$50b. Total traded-related exposure is S$36b. Of this, the bulk is export bills LC. It further reassured that only LCs from top tier banks is accepted. For the remaining S$14b, the bulk of the non-trade loans are to key domestic state-owned companies and foreign companies based in China. Management sees no stress in its loans book as well as for its China trade and non-trade loans. In addition, it has no exposure to Qingdao commodity financing. It expects cost-to-income ratio of about 45% for this year.
Raising FV to S$19.90; DBS remains our top pick
Taking into account management’s positive guidance for its business, both in terms of funding as well as its exposure, we have revised up our estimates for the rest of the year. We have increased FY14 net earnings from S$3785m to S$3886m. In addition, we are also using a higher valuation metric to reflect the more optimistic outlook and based on 1.4x book, we increased our fair value estimate from S$18.08 to S$19.90. DBS remains a BUY and our top pick in the banking sector.
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