20170807-辉立证券-Profit_before_Allowance_remains_Weak_as_Coverage_Ratio_Deteriorates_12页_567kb
报告摘要
DBS Group Holdings Ltd 2Q17 Results Summary
Core Content
This document provides an analysis of DBS Group Holdings Ltd's 2Q17 financial results, highlighting both positive and negative factors affecting its performance. The report is prepared by Phillip Securities Research and includes financial data, key insights, and valuation estimates.
Main Points
Key Financial Highlights
- Profit before Allowance: Weak, missing estimates by 12.4% due to higher-than-expected provisions.
- Net Profit: Increased by 8.9% YoY to S$1.175bn.
- Total Income: Slightly up by 0.2% YoY to S$2.924bn.
- Net Interest Income (NII): Increased by 3.0% YoY to S$1.888bn, driven by loan growth, but NIM declined by 13bps YoY.
- Net Fees & Commission: Increased by 1.3% YoY to S$636mn, supported by strong Wealth Management (WM) growth, but down by 4.4% QoQ.
- Provisions: Decreased by 16.9% YoY to S$304mn, but still affected by offshore O&G write-offs.
- Net Profit Margin: Down by 8.8% QoQ to S$1.175bn.
- Liquidity and Capital Adequacy Ratios (CAR): Improved, with CET1 CAR at 14.7% and Total CAR at 16.7% as of FY17e.
Performance by Business Segments
- Wealth Management (WM): Strong performer, with income up 36.9% YoY to S$245mn, driven by investment products and loans/deposits.
- Consumer Banking Group (CBG): Retail income declined by 2.8% YoY, but overall CBG income increased by 6.5% YoY due to WM growth.
- Institutional Banking Group (IBG): Net Income (NII) fell by 5.8% YoY, with negative growth in Treasury customer income.
- Treasury: Income fell by 8% YoY due to lower RMB hedging activities and poor interest rate performance.
Loan and Deposit Trends
- Total Loans: Increased by 6.6% YoY to S$307.422bn, with strong growth in trade loans (+6.6%) and non-trade corporate loans (+8%).
- Loan to Deposit Ratio (LDR): Increased to 88% in 2Q17, indicating higher loan growth compared to deposit growth.
- Loan Exposure: Offshore O&G support services remain a key risk, with exposure at S$5.4bn.
Valuation and Investment Rating
- Valuation Method: Gordon Growth Model with a terminal growth rate of 2%, ERP of 6.5%, and ROE of 10.2%.
- Target Price: Revised to S$17.92 (from S$17.24), reflecting improved economic sentiment and recovery in the Singapore property market.
- Investment Rating: Maintained "Reduce" rating, based on the ongoing challenges in loan rate dynamics and volume, despite positive trends in certain segments.
Key Information
Positive Aspects
- Wealth Management (WM): Strong growth, up 21% YoY, supported by investment products and loans/deposits.
- Trade Loans and Cash/SFS Income: Both showed strong growth, with trade loans up 6.6% YoY and Cash/SFS income up 35% YoY.
- Singapore Property Market Recovery: DBS has a 28.7% market share in housing mortgages, indicating a potential positive impact on CBG income.
- Cost Savings: Achieved through tech and digital initiatives, contributing to lower expenses.
Negative Aspects
- Unfavourable Loan Dynamics: IBG NII fell by 5.8% YoY, and Treasury income was down 8% YoY.
- Provision Expenses: Despite a S$350mn gain from PwC building sale in 1Q17, the coverage ratio dropped to 100% in 2Q17 due to write-offs and new NPLs.
- Hong Kong NIM Decline: Caused by unfavourable HIBOR rates and higher LDR.
Outlook and Valuation Adjustments
- FY17e Total Income Growth: Estimated at 5.7%, with NII growth at ~3%.
- Provision Expense: Estimated to be S$1.16bn for FY17e, up from S$1.1bn, due to ongoing concerns about NPL formation.
- Market Conditions: Economic sentiment is improving, and volatility is low, which supports a revised valuation.
- Valuation Ratio: P/B ratio of 1.2 (FY17e), with a target price to book ratio of 0.98.
Investment Actions
- Rating: Maintain "Reduce" rating with a revised target price of S$17.92.
- Reasoning: Based on the Gordon Growth Model, reflecting the improved economic outlook but acknowledging the ongoing challenges in managing provision expenses and loan rate dynamics.
Summary of Key Financial Metrics
| Metric | 2Q17 | 2Q16 | YoY (%) | 1Q17 | QoQ (%) |
|---|---|---|---|---|---|
| NII | 1,888 | 1,833 | 3.0% | 1,831 | 3.1% |
| Net Fees & Comm | 636 | 628 | 1.3% | 665 | -4.4% |
| Other Non-II | 400 | 458 | -12.7% | 740 | -45.9% |
| Total Income | 2,924 | 2,919 | 0.2% | 3,236 | -9.6% |
| Expenses | 1,268 | 1,285 | -1.3% | 1,248 | 1.6% |
| Allowance | 304 | 366 | -16.9% | 550 | -44.7% |
| Net Profit | 1,175 | 1,079 | 8.9% | 1,288 | -8.8% |
Valuation Ratios
| Ratio | FY14 | FY15 | FY16 | FY17e | FY18e |
|---|---|---|---|---|---|
| P/E | 11.8 | 11.7 | 10.3 | 11.0 | 10.4 |
| P/B | 1.3 | 1.3 | 1.0 | 1.2 | 1.1 |
| ROE | 11.2% | 11.4% | 10.0% | 11.0% | 11.0% |
| ROA | 1.0% | 1.0% | 0.9% | 1.0% | 1.1% |
| RORWA | 1.5% | 1.6% | 1.5% | 1.7% | 1.7% |
| NPL Ratio | 0.87 | 0.91 | 1.45 | 1.44 | 1.32 |
Summary of Investment Actions
- Rating: "Reduce"
- Target Price: S$17.92
- Forecast Dividend: SGD 0.63
- Total Return: -13.68%
Key Ratios and Margins
| Ratio/Margin | FY14 | FY15 | FY16 | FY17e | FY18e |
|---|---|---|---|---|---|
| Net Interest Margin | 1.71% | 1.84% | 1.71% | 1.75% | 1.73% |
| Cost/Income Ratio | 44.1% | 44.9% | 43.3% | 42.2% | 43.0% |
| Loan/Deposit Ratio | 86.9% | 88.5% | 86.8% | 89.7% | 89.2% |
| ROE | 11.2% | 11.4% | 10.0% | 11.0% | 11.0% |
Conclusion
The report outlines a mixed performance for DBS Group Holdings Ltd in 2Q17, with the Wealth Management segment showing strong growth and the Treasury and Institutional Banking segments facing challenges. The company's financials indicate a slight increase in net profit, but the provision expenses and coverage ratio remain a concern due to offshore O&G risks. The valuation has been revised upwards to S$17.92 based on improved economic conditions, yet the investment rating remains "Reduce" due to ongoing risks and unfavourable loan rate dynamics. The report emphasizes the importance of balancing provision expenses to maintain a healthy coverage ratio while managing the overall growth of total income.
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