RESULTS UPDATE

Singapore

DBS Group Holdings Ltd Monday, 24 October 2011 (DBS SP; DBSM.SI)

A NIM-ble turnaround Buy Pri ce a s of 27 Jul 2015 12M ta rget pri ce (S$) Previ ous ta rget pri ce (S$) Ups i de (%)

Trading data Ma rket Ca p (S$m) Is s ued resded (m) Ave Da iSha l y Tra

21.08 22.60 22.65 7.2

52,899.6 2,509.5 3.4m / $69.9m $17.62 / $21.50 71.5%

(3-Month) Vol / Va l 52 week l o / hi Free Fl oat

Major Shareholders Tema s ek Hol di ngs Norges Bank Inv Mgmt Bla ckrock

28.4% 1.7% 1.6%

DBS SP (Blue) vs. FSSTI 24.00 22.00 20.00 18.00 16.00 14.00 12.00

3,600 3,400 3,200 3,000

Source: Bloomberg

Jul-15

May-15

Jan-15

Mar-15

Nov-14

Jul-14

Sep-14

May-14

Jan-14

Mar-14

2,800

Strong set of results yet again. DBS’s 2QFY15 results came in above our expecta ons, with net profit making up 27% of our es mates for FY15. Both net interest income and non-interest income saw strong gains as DBS maintained its strong momentum from the previous quarter. We expect this momentum to con nue as DBS extends its market share in key areas of the consumer banking/wealth management segment. A turnaround in net interest margin to reach the highest in 13 quarters. Net interest margin (NIIM) jumped 6bp qoq from 1.69% in 1QFY15 to reach 1.75% in 2QFY15 as DBS benefited from (1) the re-pricing of loans at higher interest rates and (2) the winding down of excess funding which drove down its funding costs. Total customer deposits fell 5.7% qoq, with fixed deposits plunging 12.3% in par cular, as the bank cuts down on higher-cost funding. With more alterna ves (e.g. the upcoming covered bonds issuance) available for its funding needs, we believe DBS may con nue to pare down its higher-cost deposits in the following quarters to control its funding costs. Non-interest income con nues to deliver, as wealth management con nues to shine. Total non-interest income grew 25.3% yoy, with higher gains from various revenue segments such as brokerage (up 33.3% yoy), cards (up 19.3% yoy) and wealth management (up 26.8% yoy). While overall non-interest income growth was broad-based, wealth management (WM) con nues to be the main driver as overall income from WM surged 40.5% yoy. Investment banking also saw a record quarter as DBS completed nine significant deals which earned the bank over S$1mil. With a healthy pipeline of investment banking deals lined up in 2HY2015, we believe DBS is in a good posi on to grow its non-interest income in the coming quarters. Dividend hike an icing on the cake. While the dividend hike is not unexpected, we believe this hike is a vote of confidence by the management on DBS’s long-term growth prospects. Asset quality also remains healthy as the bank con nues to see no major asset quality issues across all segments, with NPL ra o remaining unchanged at 0.9% for the fi h consecu ve quarter. We maintain our BUY ra ng on DBS with a revised target price of S$22.60 a er taking into considera on the higher NIMs and also a higher cost of equity amid a rising interest rate environment. Financials

Yuxuan HE [email protected] +65 6236 2389

YE Dec (S$ m) Net Interest Income Non-Interest Income Operating Profit Net Profit EPS (S$) EPS growth (%) ROE (%) P/E (x) BVPS (S$) P/B (x) DPS (S$) Dividend Yield (%)

2013 5,569 3,358 4,239 3,672 1.42 3.0 10.8 14.9 13.5 1.6 0.58 2.8

So urce: Co mpany Data, KGI Fraser

Please see important disclosures at the end of this publica on

2014 6,321 3,297 4,621 4,016 1.54 8.4 10.9 13.7 14.8 1.4 0.58 2.8

2015F 6,950 3,575 5,046 4,270 1.64 7.1 10.8 12.8 15.9 1.3 0.60 2.9

2016F 7,670 3,733 5,372 4,404 1.73 5.5 10.6 12.2 17.0 1.2 0.60 2.9

2017F 8,449 3,964 5,807 4,742 1.85 6.7 10.5 11.4 18.3 1.2 0.62 3.0

Singapore

DBS

Figure 1: Results comparison FYE Dec (SGD'm) Net i nteres t i ncome

2QFY15 2QFY14 yoy % 1QFY15 qoq % Prev FY15F chg chg 1,743 1,557 11.9 1,690 3.1 6,997

Non-i nteres t i ncome

947

756

25.3

1,046

(9.5)

3,577

2,690

2,313

16.3

2,736

(1.7)

10,574

Opera ti ng expens es

(1,218)

(1,054)

15.6

(1,181)

3.1

(4,653)

Profi t before a l l owa nces Bad debt provi s i ons

1,472

1,259

16.9

1,555

(5.3)

5,922

Tota l i ncome

(137)

(128)

7.0

10

51

(80.4)

As s oci a tes Excepti onal i tems

Pre-ta x profi t Ta x

-

-

1,345

1,182

(181) (24.3)

4

150.0

136

13.8

1,514

24.9 15.9 NPL ra ti o uncha nged a t 0.9% for the fi fth cons ecuti ve qua rter whi l e SP fel l by 3bp qoq to rea ch 19bp (2QFY14: 14bp, 1QFY15: 22bp). 12.7

(11.2) (8.4)

One-ti me di s pos a l of a property i nves tment i n Hong Kong i n 1QFY15.

5,141

Ta x ra te (%)

15

15

Mi nori ti es

(31)

(33)

(6.1)

1,117

969

15.3

1,269

(12.0)

4,149

1.78

1.57

13.4

1.89

(5.8)

1.65

14 (30)

26.2 Cos t-i ncome ra ti o came i n hi gher a t 45.3% for thi s qua rter a s expens es i ncreas ed 3.1% qoq (1QFY15: 43.2%).

-

(180)

EPS (S$)

(215)

79

(197)

Net profit

9.4

(860)

% of Comments FY15F 24.9 Loa ns grew 8.8% yoy whi l e NIM ros e 6bp qoq to reach 1.75%, the hi ghes t i n 13 quarters . Fundi ng cos ts came i n l ower a t 0.71% (-5bp yoy, -3bp qoq). 26.5 Sl i ghtl y above expecta ti ons . Wea l th ma na gement conti nues to perform s trongl y, up 26.8% yoy. Other s egments s uch as brokera ge, ca rds a nd l oan-rel ated acti vi ti es a l s o s a w a n i ncrea s e qoq. Tra di ng revenue i ncrea s ed 55.1% yoy though down 23.3% qoq. 25.4

(823)

26.2 23.9

16 3.3

(169)

18.3 26.9 Above expecta ti ons . Growth i n net profi t wa s s upported by hi gher i nteres t i ncome (re-pri ci ng of l oans ) a nd broad-ba s ed growth i n non-i nteres t i ncome. Excl udi ng oneti me i tems , net profi t was s l i ghtl y down by 1.4% qoq.

Source: Company, KGI Fraser

July 28, 2015

2 $ 222

Singapore

DBS

Summary of Financials YE 31 Dec INCOME STATEMENT (S$mil) Net i nteres t i ncome Fees a nd commi s s i ons Other opera ti ng income Total operating income Opera ting expens es Pre-provisions profit Ba d debt provi s i ons As s ocia tes Exceptiona l i tems Pre-tax profit Ta x Profit after tax Mi nori ti es /Preferred div. Net profit attributable

2013 5,569 1,885 1,473 8,927 (3,918) 5,009 (770) 79 171 4,489 (615) 3,874 (202) 3,672

2014 6,321 2,027 1,270 9,618 (4,330) 5,288 (667) 79 198 4,898 (713) 4,185 (169) 4,016

2015F 6,950 2,351 1,223 10,525 (4,631) 5,894 (847) 40 136 5,222 (783) 4,439 (169) 4,270

2016F 7,670 2,539 1,194 11,403 (5,017) 6,385 (1,013) 40 5,412 (839) 4,573 (169) 4,404

2017F 8,449 2,748 1,217 12,413 (5,462) 6,951 (1,144) 40 5,847 (936) 4,911 (169) 4,742

Weighted a vera ge s ha res Adjus ted EPS (S$) DPS (S$) Pa yout ra ti o (%) BVPS (S$)

2,472 1.42 0.58 41.0 13.5

2,487 1.54 0.58 37.8 14.8

2,515 1.64 0.60 36.6 15.9

2,540 1.73 0.60 34.4 17.0

2,564 1.85 0.62 33.4 18.3

BALANCE SHEET (S$mil) Ca s h/Due from ba nks Securi ties Gros s loa ns Provi s i ons Goodwi l l Other a s s ets Total assets

2013 58,543 61,043 252,181 (3,527) 4,802 28,966 402,008

2014 61,780 67,457 279,154 (3,566) 5,117 30,724 440,666

2015F 61,941 72,197 292,464 (3,677) 5,118 30,214 458,257

2016F 65,545 78,893 310,953 (4,146) 5,118 30,754 487,117

2017F 70,037 84,949 333,271 (4,802) 5,118 32,185 520,757

Due to ba nks Depos i ts Debt Other l ia bi l iti es Total liabilities Sha rehol ders ' equi ty Non-controll i ng i nteres ts Total liabilities and equity

13,572 292,365 28,659 29,726 364,322 34,233 3,453 402,008

16,176 317,173 36,628 30,483 400,460 37,708 2,498 440,666

16,378 328,167 38,751 31,448 414,744 40,981 2,532 458,257

17,102 350,637 41,357 31,241 440,337 44,248 2,532 487,117

17,997 377,550 42,825 32,066 470,438 47,787 2,532 520,757

AVERAGE BALANCE SHEET (S$mil) Avg. int-ea rni ng a s s ets Avg. assets

2013 344,569 377,521

2014 376,291 421,337

2015F 398,369 449,461

2016F 425,902 472,687

2017F 458,748 503,937

Avg. int-beari ng l i abi l i ti es Avg. liabilities

321,117 340,679

350,525 382,391

368,955 407,602

397,024 427,541

429,086 455,388

36,842

38,946

41,859

45,146

48,549

Avg. equity

July 28, 2015

3 $ 333

Singapore

DBS

KEY RATIOS Profitability/Solvency (%) Net i nteres t ma rgi n Cos t/i ncome ra tio Cos t/a vera ge a s s ets Adjus ted ROE Adjus ted ROA Ba d debt provi s i on/gros s l oa ns Loa ns /depos i t rati o Ti er 1 ca pi tal ra tio Ca pi ta l a dequa cy ra tio

2013

2014

2015F

2016F

2017F

1.62 43.9 1.0 10.8 0.9 0.31 86.3 13.7 16.3

1.68 45.0 1.0 10.9 0.9 0.24 88.0 13.1 15.3

1.74 44.0 1.0 10.8 0.9 0.29 89.1 13.5 15.5

1.80 44.0 1.1 10.6 0.9 0.33 88.7 13.4 15.3

1.84 44.0 1.1 10.5 0.9 0.34 88.3 13.4 15.1

Growth (% YoY) Tota l opera ti ng i ncome Net profit a ttri butabl e EPS

10.7 (3.6) 3.0

7.7 9.4 8.4

9.4 6.3 7.1

8.3 3.1 5.5

8.9 7.7 6.7

Valuation (x) Pri ce / Ea rni ngs Pri ce / Book

14.9 1.6

13.7 1.4

12.8 1.3

12.2 1.2

11.4 1.2

July 28, 2015

4 $ 444

DBS

KGI’s Ra ngs

Disclaimer

Singapore

Ra ng

Defini on KGI Fraser Research’s recommenda ons are based on an Absolute Return ra ng system.

BUY

>10% total return over the next 12 months

HOLD

-10% to +10% total return over the next 12 months

SELL

<-10% total return over the next 12 months

This report is provided for informa on only and is not an offer or a solicita on to deal in securi es or to enter into any legal rela ons, nor an advice or a recommenda on with respect to such securi es. This report is prepared for general circula on. It does not have regard to the specific investment objec ves, financial situa on and the par cular needs of any recipient hereof. You should independently evaluate par cular investments and consult an independent financial adviser before dealing in any securi es men oned in this report. This report is confiden al. This report may not be published, circulated, reproduced or distributed and/or redistributed in whole or in part by any recipient of this report to any other person without the prior wri en consent of KGI Fraser. This report is not intended for distribu on and/or redistribu on, publica on to or use by any person in any jurisdic on outside Singapore or any other jurisdic on as KGI Fraser may determine in its absolute discre on, where the distribu on, publica on or use of this report would be contrary to applicable law or would subject KGI Fraser and its connected persons (as defined in the Financial Advisers Act, Chapter 110 of Singapore) to any registra on, licensing or other requirements within such jurisdic on. The informa on or views in the report (“Informa on”) has been obtained or derived from sources believed by KGI Fraser to be reliable. However, KGI Fraser makes no representa on as to the accuracy or completeness of such sources or the Informa on and KGI Fraser accepts no liability whatsoever for any loss or damage arising from the use of or reliance on the Informa on. KGI Fraser and its connected persons may have issued other reports expressing views different from the Informa on and all views expressed in all reports of KGI Fraser and its connected persons are subject to change without no ce. KGI Fraser reserves the right to act upon or use the Informa on at any me, including before its publica on herein. Except as otherwise indicated below, (1) KGI Fraser, its connected persons and its officers, employees and representa ves may, to the extent permi ed by law, transact with, perform or provide broking, underwri ng, corporate finance-related or other services for or solicit business from, the subject corpora on(s) referred to in this report; (2) KGI Fraser, its connected persons and its officers, employees and representa ves may also, to the extent permi ed by law, transact with, perform or provide broking or other services for or solicit business from, other persons in respect of dealings in the securi es referred to in this report or other investments related thereto; and (3) the officers, employees and representa ves of KGI Fraser may also serve on the board of directors or in trustee posi ons with the subject corpora on(s) referred to in this report. (All of the foregoing is herea er referred to as the “Subject Business”.) However, as of the date of this report, neither KGI Fraser nor its representa ve(s) who produced this report (each a “research analyst”), has any proprietary posi on or material interest in, and KGI Fraser does not make any market in, the securi es which are recommended in this report. Each research analyst of KGI Fraser who produced this report hereby cer fies that (1) the views expressed in this report accurately reflect his/her personal views about all of the subject corpora on(s) and securi es in this report; (2) the report was produced independently by him/her; (3) he/she does not carry out, whether for himself/herself or on behalf of KGI Fraser or any other person, any of the Subject Business involving any of the subject corpora on(s) or securi es referred to in this report; and (4) he/she has not received and will not receive any compensa on that is directly or indirectly related or linked to the recommenda ons or views expressed in this report or to any sales, trading, dealing or corporate finance advisory services or transac on in respect of the securi es in this report. However, the compensa on received by each such research analyst is based upon various factors, including KGI Fraser’s total revenues, a por on of which are generated from KGI Fraser’s business of dealing in securi es. Copyright 2015. KGI Fraser Securi es Pte. Ltd. All rights reserved.

July 28, 2015

$

DBS Group Holdings Ltd - KGI Securities (Singapore)

Oct 24, 2011 - Net interest margin (NIIM) jumped 6bp qoq from 1.69% in 1QFY15 to reach. 1.75% in ... Investment banking also saw a record quarter as DBS completed nine significant deals which ... Source: Company Data, KGI Fraser. Buy.

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