- No surprises. NIM weaker but expected. Credit quality strong. Ample 80.2% SGD LDR, with decent loan growth.
- The extraction of synergies from WHB remains an uncertainty.
- Maintain HOLD & SGD10.10 TP, at 1.24x FY15E P/BV. Top sector pick DBS.
3Q14 results broadly met our expectation, stripping out SGD38m contributions from OCBC Wing Hang and a one-off gain of SGD391m from Bank of Ningbo. Core PATMI, excluding OCBC Wing Hang, was SGD803m, up 5.8% YoY but down 12.8% QoQ. The QoQ weakness arose from lower life-insurance profits and a higher effective tax rate.
Operating trends within guidance
As expected, NIM was weaker at 1.68%, down 2bps QoQ though up 5bps YoY. Management earlier guided for a weaker 2H14 due to deposit competition. Evidently, cost of funds rose to 1.10% (+6bps
QoQ, +8bps YoY). Organic loans grew 1% QoQ and 11% YoY, powered by Greater China (+3%, +19%), Malaysia (+3%, +18%) and Indonesia (+2%, +15%). There were no asset-quality issues with a marginal increase in absolute NPLs. Asset quality in Greater China remained sound, with an NPL ratio of 0.3% at end-September. Post-merger CET1 was comfortably high at 13.2% (Jun 2014: 14.7%, Mar 2014: 14.4%). SGD liquidity remained strong with an 80.2% LDR (Jun 2014: 81.6%, Mar 2014: 78.8%, Dec 2013: 80.3%).
Reiterate HOLD
We leave our forecasts unchanged pending our sector review. Reiterate HOLD with a SGD10.10 TP, at 1.24x P/BV, 1SD below its mean since 2005.
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