- 2Q14 beat expectations, thanks to strong NIM, customer-related non-interest income and lower provisions.
- NIM improved further. Fee income held up. Better credit quality. Ample SGD liquidity.
- Reiterate BUY and TP of SGD20.70, set at 13x average FY14E-15E EPS. Still our preferred pick. Best positioned to benefit from rising interest rates.
2Q14 core PATMI of SGD930m (-6.1% QoQ, +10.3% YoY) beat our forecast of SGD870m and the market’s SGD924m. After a stellar 1Q14, 2Q14 was expectedly weaker, with lower net trading income. Key variances were: Stronger-than-expected NIM, fee and investment income; Lower-than-expected provisions.
Various positives to cheer about
First, NIM inched up to 1.67% (+1bp QoQ, +5bps YoY), the highest since 3Q12. This was helped by stable funding costs and marginally better average asset yields (+1bp QoQ, +6bps YoY).
Second, fee income held up better than expected, down 1.4% QoQ but up 5.5% YoY, vs UOB’s -0.9% QoQ and -6.0% YoY. Higher contributions from wealth management, investment banking and cards cushioned lower loan-related, trade and transaction service fees.
Lastly, NPLs contracted to SGD2.3b (-11.6% QoQ, -19.4% YoY) on slower new NPL creation and a resolution of some accounts from rest of the world. This contrasted with UOB’s slight asset-quality erosion.
In our view, DBS is the best positioned among the three Singapore banks to take advantage of rising interest rates. Forecasts are unchanged. Reiterate BUY and TP of SGD20.70, based on 13x average FY14E and FY15E EPS, consistent with its historical mean since Jan 2005.
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