DBS

DMG & Partners Research on 13 Feb 2012

DBS Group reported Q4 2011 net profit of $731 million, down 4 per cent q-o-q. This is above consensus expectations of $693 million and our forecast of $640 million, due to lower Q4 taxes.

At the pre-tax profit level, our Q4 2011 forecast of $836 million is close to the actual $837 million. Its NIM remained squeezed, with Q4 2011 NIM at 1.73 per cent and loans expanded at a slower pace of 4.9 per cent q-o-q.

We rate the results as fair, as the above-expectations net profit was not from core operations. We lowered our 2012 net profit forecast by 3 per cent as we raised provisioning assumptions. Our target price of $13.31 is pegged to 1.1x 2012 forecast book value, lower than the historical average of 1.34x, as we expect economic concerns to reduce investors' interest in banks. Maintain 'neutral'.

Net interest income rose 6 per cent q-o-q and 17 per cent y-o-y, on the back of higher loan volumes, but partly offset by the narrow NIM. The NIM of 1.73 per cent in Q4 2011 was unchanged sequentially but six basis points narrower y-o-y - the consequence of the soft Singapore interest rate environment and high Hong Kong deposit costs.

We forecast an average NIM of 1.8 per cent in 2012, slightly wider than 2011's 1.77 per cent, on the back of some improvement in HK$ and US$ NIM.

There was strength in the volatile net income from financial investments - $136 million in Q4 2011, sharply higher than the 2010 quarterly average of $78 million. However, this segment's contribution may not be sustained at such a high level.

Sequential loan growth momentum has slowed. Loans expanded 4.9 per cent q-o-q, slower than the 10 per cent expansion in Q3. General commerce loans rose a strong 9.4 per cent sequentially, but housing loans only a mild 1.4 per cent.

Gross loans grew 28 per cent y-o-y, with half of the rise attributed to trade finance. With a slowing economy, we forecast loan growth of 11 per cent in 2012, close to management's guidance of growth in the low teens.

NEUTRAL