Summary: DBS posted 4Q12 net earnings of S$760m which were slightly below market expectation. Net Interest Margin continued to ease off, down from 1.73% in 4Q11 and 1.67% in 3Q12 to 1.62% in 4Q12. For the year, double-digit declines in Stockbroking and Investment Banking due to weak equity markets were compensated by double-digit gains for Wealth Management and Cards. Final dividend of 28 cents was unchanged from last year. The outlook for the equity market is looking positive so far this year, and could set the stage for more capital market activities, leveraging on its strength in investment banking. While there is no mortgage war currently, we expect property transaction volume to come off this year because of recent property cooling measures. As such, we have incorporated modest assumptions into our FY13 valuations, leaving our fair value intact at S$15.94 despite recent market re-rating. Maintain BUY.
Earnings came in below consensus
DBS posted 4Q12 net earnings of S$760m (excluding divestment gains), slightly below consensus of S$788m (based on Bloomberg). Including gains, net profits came in at S$1210m. For FY12, net earnings came in at S$3360m (+17.4% or S$3809m including divestment gains). The board has declared a final dividend of 28 cents, bringing full year payout to 56 cents per share (same as 2011), and the shares will be quoted ex-dividend on 13 May 2013.
Weakness in equity market and lower NIM
Loans grew 8% from end 2011 or 4% from 3Q12 to S$210.5b. Net Interest Margin (NIM) continued to ease off, down from 1.73% in 4Q11 and 1.67% in 3Q12 to 1.62% in 4Q12. For the year, double-digit declines in Stockbroking and Investment Banking due to weak equity markets were compensated by double-digit gains for Wealth Management and Cards.
Business outlook is better in 1Q13
Current positive market outlook is likely to augur well for its capital market activities and the momentum so far looks set for a better showing in 1Q13. We expect the key outperformers (including Wealth Management and Trade Financing) to continue to do well in 2013, while the weaker segments in 2012 (including Investment Banking and Stockbroking) could possibly benefit from the resurgence of buying interest in equities so far this year. This should bring it back actively into the Investment Banking space. The pressure on NIM is likely to remain, and management explained that in 4Q12, it deliberately switched into shorter tenures instruments for its books as it anticipated some steepening of the yield curve. There was no further update on its Bank Danamon acquisition. We are expecting loans growth in the high single-digit region for 2013. Management shared that there is no mortgage pricing war yet despite the recent property cooling measures in Singapore, although we expect some weakness in 1Q and 2Q as transaction volumes drop (refer to our property reports for more details). We are maintaining our BUY rating and fair value estimate of S$15.94.
DBS posted 4Q12 net earnings of S$760m (excluding divestment gains), slightly below consensus of S$788m (based on Bloomberg). Including gains, net profits came in at S$1210m. For FY12, net earnings came in at S$3360m (+17.4% or S$3809m including divestment gains). The board has declared a final dividend of 28 cents, bringing full year payout to 56 cents per share (same as 2011), and the shares will be quoted ex-dividend on 13 May 2013.
Weakness in equity market and lower NIM
Loans grew 8% from end 2011 or 4% from 3Q12 to S$210.5b. Net Interest Margin (NIM) continued to ease off, down from 1.73% in 4Q11 and 1.67% in 3Q12 to 1.62% in 4Q12. For the year, double-digit declines in Stockbroking and Investment Banking due to weak equity markets were compensated by double-digit gains for Wealth Management and Cards.
Business outlook is better in 1Q13
Current positive market outlook is likely to augur well for its capital market activities and the momentum so far looks set for a better showing in 1Q13. We expect the key outperformers (including Wealth Management and Trade Financing) to continue to do well in 2013, while the weaker segments in 2012 (including Investment Banking and Stockbroking) could possibly benefit from the resurgence of buying interest in equities so far this year. This should bring it back actively into the Investment Banking space. The pressure on NIM is likely to remain, and management explained that in 4Q12, it deliberately switched into shorter tenures instruments for its books as it anticipated some steepening of the yield curve. There was no further update on its Bank Danamon acquisition. We are expecting loans growth in the high single-digit region for 2013. Management shared that there is no mortgage pricing war yet despite the recent property cooling measures in Singapore, although we expect some weakness in 1Q and 2Q as transaction volumes drop (refer to our property reports for more details). We are maintaining our BUY rating and fair value estimate of S$15.94.
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