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DBS Group Summary

Core Content

DBS Group (DBS SP) is a Singapore-based bank that has shown strong financial performance and is positioned well to benefit from rising interest rates. The share price is SGD18.22, with a target price of SGD20.70, indicating a 14% increase. The market capitalization is USD35.8 billion, and the average daily trading volume is USD48 million. The bank is well-managed with a free float of 69.5% and a major shareholder, Temasek, holding 29.1%.

Key Financial Performance

• 2Q14 Results:

  • The quarter beat expectations due to a strong net interest margin (NIM), customer-related non-interest income, and lower provisions.
  • Core net profit was SGD930 million, which is a 6.1% decrease from the previous quarter but a 10.3% increase year-on-year.
  • The NIM increased to 1.67%, up 1 basis point (bp) quarter-over-quarter (QoQ) and 5 basis points (bps) year-over-year (YoY), the highest since 3Q12.
  • Fee income declined 1.4% QoQ but rose 5.5% YoY, outperforming UOB's performance.
  • Non-interest income dropped 17.8% QoQ but increased 14.4% YoY, primarily due to a decline in net trading income.

• Half-Year Performance (1H14):

  • Net interest income increased to SGD3,045 million, up 12.4% YoY.
  • Non-interest income fell to SGD1,676 million, a 10.5% decrease YoY, due to lower net trading and investment income.
  • Operating income rose to SGD4,721 million, up 3% YoY.
  • Pre-provision profit was SGD2,626 million, a 0.6% decrease YoY.
  • Profit after tax was SGD1,993 million, up 5.2% YoY.

Financial Metrics

Asset Quality and Margins

• Asset Quality:

  • NPLs (Non-Performing Loans) contracted to SGD2.3 billion, a 11.6% QoQ and 19.4% YoY decrease, indicating improved credit quality.
  • Provision coverage increased to 161.7%, showing better risk management.
  • The resolution of some accounts in the rest of the world contributed to the decline in NPLs, while NPLs in South and Southeast Asia (largely India) rose.

• Margins:

  • NIM improved to 1.67%, supported by stable funding costs and better average asset yields.
  • The interest spread increased slightly to 1.62%, with average lending yields at 2.38% and average cost of funds at 0.76%.

Key Trends

• Share Price Performance:

  • The share price has been volatile, with a 52-week high of SGD18.22 and a low of SGD15.66.
  • The share has shown positive performance over the last 3 months, with an average turnover of USD48.3 million.

• Liquidity:

  • DBS has the most liquid SGD books among the three Singapore banks.
  • The loan-deposit ratio was 86.0% in 2Q14, showing a stable liquidity position.

• Profitability:

  • ROAE (Return on Average Equity) increased to 11.0%, with a 14.4% increase in 1Q14.
  • The cost/income ratio decreased slightly to 45.6%, indicating better cost control.

Research Offices

• Singapore:

  • NG Wee Siang (Head of Research): (65) 6432 1467 | ngweesiang@maybank-ke.com.sg
  • Gregory YAP (SMID Caps - Regional): (65) 6432 1450 | gyap@maybank-ke.com.sg
  • ONG Kian Lin (Technology & Manufacturing - Telcos): (65) 6432 1470 | ongkianlin@maybank-ke.com.sg
  • YEAK Chee Keong (S-REITS): (65) 6432 1460 | yeakcheeong@maybank-ke.com.sg

• Malaysia:

  • WONG Chew Hann (CA Head of Research): (603) 2297 8686 | wchewh@maybank-ib.com
  • Desmond CH'NG (Banking & Finance): (603) 2297 8680 | desmond.chng@maybank-ib.com
  • LIAW Thong Jung (Oil & Gas - Regional - Shipping): (603) 2297 8688 | tjliaw@maybank-ib.com
  • ONG Chee Ting (Plantations - Regional): (603) 2297 8678 | ct.ong@maybank-ib.com

• Hong Kong / China:

  • Howard WONG (Head of Research): (852) 22680648 | howardwong@kimeng.com.hk
  • Alexander LATZER (Oil & Gas Regional): (852) 2268 0647 | alexanderlatzer@kimeng.com.hk
  • Jacqueline KO (Consumer): (852) 2268 0633 | jacquelineko@kimeng.com.hk
  • Ka Leong LO (Consumer): (852) 2268 0630 | kllo@kimeng.com.hk

• India:

  • Jigar SHAH (Head of Research): (91) 22 6632 2632 | jigar@maybank-ke.co.in
  • Anubhav GUPTA (Oil & Gas - Automobile - Cement): (91) 22 6623 2605 | anubhay@maybank-ke.co.in
  • Urmil SHAH (Technology - Media): (91) 22 6623 2606 | urmil@maybank-ke.co.in

• Indonesia:

  • Wilianto IE (Head of Research): (62) 21 2557 1125 | wilianto.ie@maybank-ke.co.id
  • Rahmi MARINA (Banking & Finance): (62) 21 2953 0785 | rahmi.marina@maybank-ke.co.id
  • Aurelia SETIABODU (Property): (62) 21 2953 0785 | aurelia.setiabudi@maybank-ke.co.id
  • Isnaputra ISKANDAR (Infrastructure Construction - Transport): (62) 21 2557 1129 | isnaputra.iskandar@maybank-ke.co.id
  • Pandu ANUGRAH (Infrastructure Construction - Transport): (62) 21 2557 1137 | pandu.anugrah@maybank-ke.co.id
  • Lappi ASHAN (Transport): (62) 21,29530784 | janni.asman@mayba

Conclusion

DBS Group has shown strong financial performance in 2Q14, outperforming expectations and maintaining a robust position in the market. The bank is well-positioned to benefit from rising interest rates, and its core net profit and NIM have improved. The target price of SGD20.70 reflects confidence in its future performance, with a 13x average FY14E and FY15E EPS. The bank's asset quality has improved, and its liquidity is strong, making it a preferred pick among analysts.