DBS Group: Remains a BUY

By Carmen Lee
Mon, 8 Feb 2010, 09:07:15 SGT

Summary: DBS group posted FY09 net profit of S$2041m, up 6% YoY. The group also declared a final dividend of 14 cents, bringing full year payout to 56 cents. As mentioned in our earlier report, we expect DBS to continue to play a significant role in capital market activities and this should help to buoy its non-interest income. New CEO Piyush Gupta also emphasized the priority to continue to entrench its position in Singapore. This includes building up customer assets, the POSB franchise, improve cross selling, etc. The rebalancing of its geographic business mix will also mean that it aims to achieve about 40% of its revenue from Singapore, 30% from Greater China and the balance 30% from South and Southeast Asia. We have raised our FY10 earnings from S$2480m to S$2575m, mainly due to lower allowances. We continue to favour DBS as our pick in the sector and reiterate our BUY rating and S$16.60 fair value.

Posted FY09 net profit of S$2041m. DBS group reported a 67% YoY increase (but a 12% QoQ decline) in 4Q09 net profit to S$493m, bringing full year net profit to S$2041m, up 6% YoY, and in line with market expectations. Net interest income amounted to S$4455m in FY09, up 4%. Non-interest income grew 23% to S$2148m, giving total income of S$6603m. Expenses were well contained and fell 2% to S$2604m, bringing cost-to-income ratio down from 43.3% in FY08 to 39.4% in FY09. Allowances rose QoQ in 4Q09, resulting in full year charges of S$1552m, up 75% YoY. Total NPLs rose from S$1958m in FY08 to S$3876m in FY09, and the increase was largely due to the Middle East. On the Dubai exposure, management shared that 43% of NPL are current and that Dubai World is still paying interest. The group announced a final dividend of 14 cents, bringing full year payout to 56 cents.

Likely to have lion share of local fund-raising activities. Management highlighted that SME constituted a substantial part of its corporate banking business. It is also the largest mortgage loan provider in Singapore and a leading lender in the government loan programme. It also has a lion share of the market for fund raised through rights issues in Singapore. And as mentioned in our earlier report, this and with more IPOs expected this year, we expect DBS to continue to play a significant role in these capital market activities and this should in turn buoy its non-interest income.

Strategies from the new CEO. New CEO Piyush Gupta also emphasized the priority to continue to entrench its position in Singapore. This includes building up customer assets, the POSB franchise, improve cross selling, etc. The rebalancing of its geographic business mix will also mean that it aims to achieve about 40% of its revenue from Singapore, 30% from Greater China and the balance 30% from South and Southeast Asia. In Taiwan and Indonesia, it intends to broaden its consumer banking business, while it will focus on corporate top-end, affluent consumers in China and India.

Reiterate BUY and fair value of S$16.60. We have raised our FY10 earnings from S$2480m to S$2575m, mainly due to lower allowances. We continue to favour DBS as our pick in the sector and reiterate our BUY rating and S$16.60 fair value.

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