[Fides Assets Singapore Views: DBS GROUP HOLDINGS – SGX]
27th May 2019
Maintain BUY for DBS GROUP HOLDINGS (DBS SP) listed on SGX
Target price: SGD$30.20
2019 was a solid start for banks reporting earnings growth of 7%-12% year-on-year (yoy) despite the high base of performance in 2018. A spike in mortgage lending rates helped DBS and OCBC achieve a net interest margin (NIM) expansion of 1 basis point (1bp) and 4 basis points quarter-on-quarter (qoq) respectively.
Locally prominent banks DBS, OCBC and UOB reported net profits SGD$1.65b (+8% yoy), SGD$1.23b (+11% yoy) and SGD$1.05b (+8% yoy). All three sets of results exceeded market expectations.
Overall, local banks have benefitted from net interest margin expansion generated by higher mortgage lending rates and a consequential rebound in market sensitive sources of income, such as wealth management fees and net trading income.
In 2019, we expect a continued growth as local banks and especially DBS presents a strong case for corporate loans (excluding trade related loans) but foresee a slowdown on residential mortgage loans.
Additionally, there will be no change to the dividend policy. As already evident in 1Q19, the board had declared a dividend of $0.30 per share. The frequency of the paying these dividends will also be increased from twice to four times a year.
We maintain a BUY position for OCBC, UOB and DBS, with a specific new target price of $30.20 for DBS Group Holdings.
