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DBS Group (DBS SP) Summary

Core Content

DBS Group (DBS SP) is a leading Singapore-based bank with a strong financial position and positive operating trends. The company reported its 4Q13 results, which were in line with expectations but below the market consensus. The share price was at SGD16.53, with a target price of SGD19.60, indicating a 19% upside. The market capitalization was USD31.9B, and the average daily trading volume (ADTV) was USD40M. DBS remains the preferred choice among Singapore banks for its ability to benefit from a rising interest rate environment.

Key Financial Highlights

• Core PATMI (4Q13): SGD802m, down 7.0% QoQ but up 5.5% YoY.
• FY13 Core PATMI: SGD3,672m, down 3.6% from FY12, driven by higher fee and commission income (+19.4%) and stronger loan growth (+18.1%), which increased net interest income by 5.4% to SGD5.6b.
• Core FDEPS (FY14E): SGD1.6, with a projected growth of 17.6% in FY15E and 29.5% in FY16E.
• Core FD P/E (FY14E): 11.9, expected to decrease to 7.8 by FY16E.
• P/BV: 1.1 (FY14E) and is expected to stay stable at 1.0 by FY16E.
• Net dividend yield: 3.5% in FY14E, projected to rise to 3.9% in FY16E.
• Book value (FY13): SGD14.79, expected to grow to SGD17.36 by FY16E.
• ROAE: 9.8% (FY13), projected to increase to 12.9% in FY16E.
• ROAA: 0.8% (FY13), projected to rise to 1.0% in FY16E.

Operating Trends

• NIM: 1.61% in 4Q13 (up 1bp QoQ, down 1bp YoY), with FY13 NIM at 1.62%.
• Loan Growth: 18.1% YoY, driven by trade loans to Rest of Greater China and Singapore corporate loans.
• Asset Quality: Resilient, with a Gross NPL ratio of 1.1% at end-2013, down from 1.2% in previous quarters.
• Balance Sheet: Strong with a CET1 ratio of 13.7% and a SGD LDR of 75.3%.
• DBS Hong Kong: Showed strong performance with a 4Q13 PATMI of SGD216m (+37% QoQ, +29% YoY), taking FY13 earnings to SGD821m (+18%).

Key Metrics

Profitability and Liquidity

• Net Interest Margin (NIM): 1.61% (4Q13), with an interest spread of 1.55%.
• Cost/Income Ratio: 42.4% (FY12A), expected to decrease to 41.3% (FY16E).
• Liquidity: SGD LDR of 75.3% (end-2013), with a Loan/Deposit ratio of 85.0%.
• Provision Coverage: High, with a provision coverage of 135.1% (end-2013), indicating strong ability to absorb loan losses.
• Gross NPL Ratio: 1.1% (end-2013), showing improved asset quality.

Outlook

• Loan Growth: Expected to slow in 2014.
• Interest Rates: DBS is well-positioned to benefit from a rising interest rate environment.
• Profitability: Projected to improve with increasing core net profit and ROAE.

Key Figures

• Share Price Performance: Down 4.2% in 1 month, up 9.5% in 12 months.
• Relative to Country: Down 1.2% in 1 month, up 18.9% in 12 months.
• Core P/E (FY14E): 11.7, expected to decline to 7.8 by FY16E.
• ROAE: Projected to rise from 9.8% (FY13) to 12.9% (FY16E).

Summary of Key Points

• DBS reported 4Q13 results in line with expectations but below the market consensus.
• NIM stabilized, and credit quality remained strong.
• Loan growth was stronger than expected, contributing to increased net interest income.
• Asset quality was resilient with a Gross NPL ratio of 1.1%.
• DBS Hong Kong performed well, with a 4Q13 PATMI of SGD216m.
• DBS remains a preferred pick due to its strong position to benefit from rising interest rates.
• The target price of SGD19.60 reflects a 19% increase from the current share price.
• Profitability and liquidity are expected to improve over the forecast period.
• Loan growth is anticipated to slow in 2014, but the bank's financial strength remains robust.
• The bank's core net profit and ROAE are projected to grow significantly in the coming years.