20131028-DBS_Group-Dah_Sing_Bank_13页_259kb

Summary of DBS Group Research: Equity Report (28 October 2013)

Core Content

This report from DBS Group Research provides an analysis of Dah Sing Bank Group (DSBG), a subsidiary of Dah Sing Financial, and its financial performance and valuation in the context of the Bank of Chongqing (BoCQ) IPO. The report outlines the analysts' recommendation downgrade from BUY to HOLD, citing the negative implications of the BoCQ IPO on DSBG's valuations and earnings.

Main Points

• Recommendation: Downgraded from BUY to HOLD due to the BoCQ IPO and the overvaluation of DSBG's share price.
• Price Target: Updated to HK$14.00 from HK$13.70.
• Key Catalysts: The potential for a higher market valuation of BoCQ and the US interest rate cycle.
• BoCQ IPO Impact:
  • The IPO is expected to slow and dilute BoCQ's contributions to DSBG.
  • BoCQ's ROE is projected to decline from 26% to 17–18% post-IPO due to deleveraging, NIM pressure, and provision pressures.
  • DSBG's stake in BoCQ will decrease from 20% to 17.05%.
• Valuation Concerns:
  • The market value of DSBG's BoCQ stake is only 15% of DSBG’s market cap, but contributes over 30% of DSBG's earnings.
  • Implied valuation for DSBG without BoCQ is considered high at 1.15x P/BV and 13x P/E.
  • The market may undervalue the BoCQ stake, leading to an overvaluation of DSBG.
• DSBG's Performance:
  • DSBG's share price has increased by over 70% YTD, which the analysts believe is excessive without M&A prospects.
  • The ROE for DSBG is expected to improve to 11.4% in 2015, while the ROE for BoCQ is expected to decline.
  • DSBG's EPS is forecasted to grow by 3–5% due to improved NIM outlook.
• Peer Comparison:
  • DSBG's P/E and P/BV are in line with peers, but its ROE is slightly lower than some.
  • The report shows DSBG's performance and valuation relative to other Hong Kong banks.

Key Information

• Company Overview: DSBG is the banking arm of Dah Sing Financial, with over 50 branches in Hong Kong, 15 in Macau, and 6 in China.
• Market Cap: HK$18,095 million.
• Issued Capital: 1,251 million shares.
• Major Shareholders: Dah Sing Fin Hldgs (74.6%), Aberdeen Asset Management (8.0%).
• Free Float: Not explicitly stated in the document.
• Average Daily Volume: 2,960,000 shares.
• DSBG's Stake in BoCQ: 17.05% post-IPO.
• BoCQ's IPO Details:
  • Offering 708 million shares (670 million new shares) at HK$5.6–6.5 per share.
  • Expected to dilute DSBG's earnings and reduce its stake.
• Financial Projections (FY13–15F):
  • Pre-prov. Profit: HK$1,692 million (2013F), HK$1,761 million (2014F), HK$1,967 million (2015F).
  • Net Profit: HK$1,720 million (2013F), HK$1,774 million (2014F), HK$1,951 million (2015F).
  • EPS: HK$1.37 (2013F), HK$1.42 (2014F), HK$1.56 (2015F).
• Valuation Metrics:
  • P/E: 10.5 (2013F), 10.2 (2014F), 9.3 (2015F).
  • P/BV: 1.0 (2013F), 1.07 (2014F), 1.04 (2015F).
• ROE:
  • DSBG: 10.0% (2013F), 10.6% (2014F), 11.4% (2015F).
  • BoCQ: 22.2% (2013F), 17.7% (2014F), 17.4% (2015F).
• Dividend Yield:
  • 2.6% (2013F), 2.5% (2014F), 2.7% (2015F).
• DSBG's Financials After Stripping Out BoCQ:
  • Book value: HK$13,665 million (2013F), HK$13,333 million (2014F), HK$13,158 million (2015F).
  • ROE: 7.7% (2013F), 8.9% (2014F), 9.7% (2015F).
  • P/E: 13.7 (2013F), 12.8 (2014F), 11.9 (2015F).
  • P/BV: 1.12 (2013F), 1.15 (2014F), 1.16 (2015F).
• Sensitivity Analysis:
  • NIM ±10bps: Net Profit ±12.2%.
  • Credit cost ±10bps: Net Profit ±7%.
• Income Statement Highlights:
  • Net Interest Income: HK$2,719 million (2013F), HK$2,884 million (2014F), HK$3,128 million (2015F).
  • Net Profit: HK$1,720 million (2013F), HK$1,774 million (2014F), HK$1,951 million (2015F).
• Balance Sheet Highlights:
  • Total Assets: HK$165,657 million (2013F), HK$173,102 million (2014F), HK$181,104 million (2015F).
  • Total Net Loans & Adv.: HK$107,345 million (2013F), HK$112,263 million (2014F), HK$117,478 million (2015F).
  • Shareholders' Fund: Not specified in the document.

Analysts

• Alexander LEE CFA: +852 2971 1930 | alexander_lee@hk.dbsvickers.com
• Nicole WU: +852 2820 4919 | nicole_wu@hk.dbsvickers.com

Key Assumptions

• NIM: 1.76% (2013F), 1.77% (2014F), 1.84% (2015F).
• Loan Growth: 12% (2013F), 5% (2014F), 5% (2015F).
• Net Fee Growth: 25% (2013F), 9% (2014F), 7% (2015F).
• Cost-to-Income Ratio: 53.0% (2013F), 53.5% (2014F), 51.9% (2015F).
• Credit Cost: 0.32% (2013F), 0.35% (2014F), 0.43% (2015F).
• Yield on Earnings Assets: 2.75% (2013F), 2.79% (2014F), 3.08% (2015F).
• Average Cost of Funds: 1.09% (2013F), 1.12% (2014F), 1.36% (2015F).

Conclusion

The report concludes that the recent share price increase of DSBG is excessive and not supported by M&A activity. The analysts do not believe the Wong family is looking to sell, and the IPO of BoCQ is expected to have a negative impact on DSBG's valuations. Despite the improved NIM outlook, the downgrade to HOLD is justified due to the overvaluation of DSBG and the dilution of BoCQ's contributions.