DBS posted 1Q15 net earnings of S$1.27b including a one-off item of S$136m from the disposal of an investment property in Hong Kong. Net Interest Income rose 14% YoY or 1% QoQ to S$1.69b. Net Interest Margin (NIM) improved from 1.66% in 1Q14 to 1.69% in 1Q15, but was slightly off from 1.71% in 4Q14. Management is guiding for NIM to improve in 2Q as they expect most SIBOR benefit to accrue in 2Q. In terms of loans, the guidance is for 6% full year growth on a constant currency basis. Taking the above into consideration, we have adjusted our estimates with the net impact being an increase in FY15 earnings estimates from S$4322m to S$4400m. In view of the recent re-rating for the banking sector, we have also raised our fair value estimate to S$22.52. With a dividend yield of 2.8% and 8.4% upside to our fair value, we are retaining our BUY rating on DBS.
1Q earnings of S$1.27b was better than expected
DBS Group posted 1Q15 net earnings of S$1.27b (including one-off) and this is higher than market expectations of S$1.05b. Excluding a one-off item of S$136m from the disposal of an investment property in Hong Kong, net profit increased 10% YoY from S$1033m in 1Q14 to S$1.13b in 1Q15. Improvement was fairly across the board. Net Interest Income rose 14% YoY or 1% QoQ to S$1.69b. Net Interest Margin (NIM) improved from 1.66% in 1Q14 to 1.69% in 1Q15, but was slightly off from 1.71% in 4Q14. Non-interest Income rose 2% YoY and 78% QoQ to S$1182m (including one-off items), giving total income improvements of 8% YoY and 23% QoQ to S$2.87b. Allowances for credit and other losses came off 14% QoQ to S$181m and was part of the reason for the 1Q results being better than our estimates.
Management is still positive on its outlook; trade contraction in China
CEO Piyush Gupta expects NIM to improve in 2Q as he expects most SIBOR benefit to accrue in 2Q. For its loans book, he is guiding for 6% full year growth on a constant currency basis. For this quarter, management explained that while the group enjoyed higher corporate and mortgage loans, this was offset by a decline in trade loans. The latter fell about 8% due to the contraction in China trade. On a QoQ basis, corporate loans grew 5% and consumer loans improved 2%, but this was offset by an 8% drop in trade loans to S$46b. For China, the contraction was due to lower commodity prices as well as onshore-offshore RMB interest rate convergence (from a difference of 2.4% in Jul 2014 to 0.7% in March 2015).
Maintain BUY; increasing FV to S$22.52
Following the 1Q results and taking into account better margins in 2Q and slower loans growth projections, the net impact is that we are raising our FY15 earnings estimates from S$4322m to S$4400m. In addition, we are also increasing our fair value estimate from S$21.68 to S$22.52, largely in view of the recent re-rating for the banking sector. With a dividend yield of 2.8% and 8.4% upside to our fair value, we are retaining our BUY rating on DBS.
DBS Group posted 1Q15 net earnings of S$1.27b (including one-off) and this is higher than market expectations of S$1.05b. Excluding a one-off item of S$136m from the disposal of an investment property in Hong Kong, net profit increased 10% YoY from S$1033m in 1Q14 to S$1.13b in 1Q15. Improvement was fairly across the board. Net Interest Income rose 14% YoY or 1% QoQ to S$1.69b. Net Interest Margin (NIM) improved from 1.66% in 1Q14 to 1.69% in 1Q15, but was slightly off from 1.71% in 4Q14. Non-interest Income rose 2% YoY and 78% QoQ to S$1182m (including one-off items), giving total income improvements of 8% YoY and 23% QoQ to S$2.87b. Allowances for credit and other losses came off 14% QoQ to S$181m and was part of the reason for the 1Q results being better than our estimates.
Management is still positive on its outlook; trade contraction in China
CEO Piyush Gupta expects NIM to improve in 2Q as he expects most SIBOR benefit to accrue in 2Q. For its loans book, he is guiding for 6% full year growth on a constant currency basis. For this quarter, management explained that while the group enjoyed higher corporate and mortgage loans, this was offset by a decline in trade loans. The latter fell about 8% due to the contraction in China trade. On a QoQ basis, corporate loans grew 5% and consumer loans improved 2%, but this was offset by an 8% drop in trade loans to S$46b. For China, the contraction was due to lower commodity prices as well as onshore-offshore RMB interest rate convergence (from a difference of 2.4% in Jul 2014 to 0.7% in March 2015).
Maintain BUY; increasing FV to S$22.52
Following the 1Q results and taking into account better margins in 2Q and slower loans growth projections, the net impact is that we are raising our FY15 earnings estimates from S$4322m to S$4400m. In addition, we are also increasing our fair value estimate from S$21.68 to S$22.52, largely in view of the recent re-rating for the banking sector. With a dividend yield of 2.8% and 8.4% upside to our fair value, we are retaining our BUY rating on DBS.
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