DBS

Kim Eng on 10 Feb 2012

DBS’s share price nudged up 0.5% following its 4Q11 results this morning that came in within market estimates. Full-year net profit hit $3b, up a healthy 15% YoY. 4Q11 net profit momentum tapered off on a QoQ basis (-4% YoY) largely due to lower fee income and lower investment gains. On the positive side, net interest margins stabilised QoQ at 1.73%, aided in part by NIM improvement out of Hong Kong. Areas of weakness include the fact that costs are still running faster than income, while there has been an uptick in non-performing loans (NPLs) due to a lumpy shipping NPL. The assurance here, nevertheless, is that 40% of the group’s NPLs are still current in interest and principal, while loan loss coverage is a healthy 165%. Loan growth was robust in 2011, up 28% YoY, driven primarily by trade financing lines. With the overall loan/deposit ratio having risen to 86%, expectations are for growth to taper off this year to the low teens, keeping pace with deposit growth. A further $0.28 DPS has been announced, taking the total tax-exempt DPS to $0.56, or a yield of 4.1% based on yesterday’s close of $13.55. Overall, the results were robust, but our Sell call is maintained on expectations of economic headwinds ahead. With exposure to two highly open economies, we expect DBS’s earnings to be more vulnerable to such volatility.