DBS Group Holdings

UOBKayhian on 11 Feb 2015

FY15F PE (x): 11.6
FY16F PE (x): 10.5

Piyush intends to stay. CEO Piyush Gupta has not been approached to be the CEO at Standard Chartered Bank. He says he is happy at DBS and does not intend to entertain any potential job offers. The existing management team has doubled net profit over the past five years and delivered 22 consecutive quarters of yoy earnings growth. Clarified on exposure to oil & gas and commodities. Management estimated exposure (broad exposure including loans and commitments) to the oil & gas sector at S$20b, coming from oil majors, state-owned companies, refineries and downstream services. DBS has 250 customers in this space. Management has identified six names as vulnerable but the exposure to these companies is small. Less uncertainty internally, more uncertainty externally. 4Q is usually a seasonally weaker quarter for DBS. Unfortunately, the pullback in net trading income was more severe in 4Q14 than in previous years. Investors should be relieved that CEO Piyush Gupta has expressed the desire to stay at DBS. The strength of DBS’ underlying business franchise remains strong although future growth has to be toned down due to slower growth in Singapore and China. Maintain BUY. We roll over our valuation to 2015. Our target price of S$23.55 is based on 1.48x P/B, derived from the Gordon Growth Model (ROE: 10.8%, required return: 7.8% and constant growth: 1.5%).