- 3Q14 beat again, with fees & trading gains. Third consecutive outperformance.
- NIM improved. Fee income lifted by IB. Strong credit quality. Ample SGD liquidity.
- Reiterate BUY & SGD23.40 TP, at 13x FY15E EPS. Our preferred pick. Best positioned to benefit from rising rates.
3Q14 core PATMI was up 8.4% QoQ and 16.9% YoY to SGD1.01b, to beat consensus and our estimate of SGD950m. Variances included stronger-than-expected fees and trading gains (+54% QoQ, +44% YoY). As with peers, fees performed better than expected (+10.3% QoQ, +20.1% YoY), especially from IB. UOB’s was up 15.8% QoQ and 16.8% YoY, OCBC’s up 15% and 16%. 9M14 earnings form 78.6% of our full-year estimate.
The positives
First, NIM inched up 1bp QoQ and 8bps YoY to 1.68%, the highest in nine quarters. This was helped by stable funding costs (-1bp QoQ, +2bps YoY) and wider average asset yields (unchanged QoQ, +10bps YoY). Second, loans grew 1.7% QoQ or 8.3% YoY, at the lower end of guidance. This was led by SGD consumer and corporate loans. Third, SGD deposits grew 1.0% QoQ or 0.9% YoY to SGD137.3b, with a 77.6% LDR (UOB: 95.9%, OCBC: 80.2%). Asset quality was also resilient, with expected pockets of weakness in South and Southeast Asia, mainly India and Indonesia.
Maintain BUY; Top sector pick
DBS stands to gain the most with its solid deposit franchise when interest rates rise, in our opinion. Forecasts are unchanged pending sector review. Reiterate BUY and SGD23.40 TP, based on 13x FY15E EPS, consistent with its historical mean since Jan 2005.
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