Friday, February 8, 2013

DBS

DBS: CLSA reiterates SELL, reducing its TP to $13.85. Stating that DBS's disappointing 4Q12 results provide a tough starting point for 2013. The unanticipated 10% miss in pre-impairment profit (PiP) from a soft top-line and heavy cost line. The bank’s 4Q12 PiP was at its lowest level since 4Q10. Cost growth has outpaced revenue growth in most quarters since 4Q10. Although revenue declined by 2% q/q in 4Q12, costs rose by 4.7%. The group’s investment in its businesses is not translating to sufficient revenue growth at this stage. PiP in consumer and wealth management and geographies outside of Singapore and Hong Kong were particularly poor with China tipping into a loss in 4Q12. NIMs are rebased after the poor 4Q12 performance; CLSA now forecast 1.59% for 2013 (2012: 1.70%). The material contraction in NIM is challenging to offset. House cut its 2013 and 2014 net profit by 4% respectively. In order to outperform and hit company guidance, non-interest income will need to improve by more than 10% YoY. CLSA continue to be of the view that although the stock currently trades at a superficially undemanding multiple of 1.1x 2013 Book and at a discount to peers, it is not cheap. House believe the discount to peers should be wider given the uncertainty and potential unattractiveness of the proposed Bank Danamon deal and the continued deterioration in underlying profitability.

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