- 3Q beat expectations, from fees and trading & investment income.
- Stable NIM & credit quality. Improving SGD funding profile. Stronger-than-expected loan growth of 11.0% YoY.
- Maintain HOLD. EPS and TP at 12x FY15E P/E unchanged. Top sector pick: DBS.
3Q14 core PATMI of SGD866m (+7.2% QoQ, +25.5% YoY) beat consensus and our estimates, from fees (+15.8% QoQ, +16.8% YoY), and net trading & investment income of SGD258m (+3.2% QoQ, +80.4% YoY). 9M14 core earnings form 81.8% of our FY14E. After a weaker 2Q14, operating trends turned more positive. The market should view this set of results positively.
Encouraging trends
First, 3Q14 NIM stabilised at 1.71% (2Q14: 1.71%, 3Q13: 1.71%), as active liability management helped to contain cost of funds at 1.01%. Management expects NIM to hold up as higher funding costs are being compensated by wider loan yields. Second, after a weaker 2Q14, asset quality was stable. While Singapore housing NPLs, largely from one key project in Sentosa, edged higher by 12.3% QoQ for the second successive quarter, management does not foresee more to come. Third, SGD deposits expanded 5.0% QoQ and 2.2% YoY to SGD111.0b. This took SGD loan-deposit ratio to 95.9% (Jun 2014: 100.1%, Mar 2014: 95.4%, Dec 2013: 95.4%). Fourth, net loan growth was a stronger-than-expected 1.5% QoQ or 11.0% YoY, against our 8% for FY14E.
Reiterate HOLD
We leave our forecasts unchanged pending our sector review. TP still at SGD25.30, based on 12x FY15E P/E, 0.5SD below its rolling P/E mean since Jan 2005.
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