Tuesday, 4 August 2015

DBS Group

OCBC on 27 Jul 2015

DBS Group generated 2Q15 net earnings of S$1117m. Net Interest Margin (NIM) rose from 1.67% in 2Q14 and 1.69% in 1Q15 to 1.75% this quarter – the highest in 13 quarters, and this boosted Net Interest Income to S$1743m. A first-half dividend of 30 cents per share was declared, higher than 28 cents in 1H14. With interest rates likely to head higher, we expect DBS to continue to do well, continuing with the interest income improvement trend seen in 2Q15. We have adjusted our earnings estimates and raised our fair value estimate to S$23.20 taking into account a higher interest rate environment in 2016. DBS has done well since our last report in June 2015, appreciating some 7%, but despite this gain, we are maintaining our BUY rating as we see further upside for the stock.

Better than expected 2Q, raised interim dividend to 30 cents
DBS Group posted 2Q15 net earnings of S$1117m, up 15% YoY and down 12% QoQ, and above market expectations of S$1075m based on a Bloomberg poll. Total income grew rose 16% YoY and was down 6% QoQ to S$2690mn as both net interest income and fee income reached new quarterly highs. The lower QoQ performance was largely due to a one-time gain of S$136m recorded in 1Q15 for the disposal of a property investment in Hong Kong. Net Interest Margin (NIM) rose from 1.67% in 2Q14 and 1.69% in 1Q15 to 1.75% this quarter – the highest in 13 quarters, and this boosted Net Interest Income to S$1743m. The improvement was largely due to SGD loans re-pricing. A first-half dividend of 30 cents per share was declared, higher than 28 cents in 1H14. 

Improvements from several areas
Apart from the continuing strong performance from its Wealth Management, there were also strong performances from several units. Wealth Income grew strongly, up 34% in 1H15 to S$342m. This was followed by Cards, which posted 21% growth to S$207m. In the Singapore mortgage market, DBS reported market share of 25.3%. For Bancassurance, DBS is number one in Singapore based on 1Q15 market share for new business. 

Maintain BUY
With interest rates likely to head higher, we expect DBS to continue to do well, continuing with the positive interest income trend seen in 2Q15. Despite the uncertain global market outlook and management’s projection of 5% loans growth in 2015 after the strong double-digit growth of the past few years, the outlook remains fairly positive and management is expecting NIM to stay at the same level for the rest of the year. We have adjusted our earnings estimates and also raised our fair value to S$23.20, taking into consideration a higher interest rate environment in 2016. DBS has done well since our last report in June 2015 as it gained some 7% in the past few weeks, but despite this, we are maintaining our BUY rating as we see further upside for the stock.

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