DBS

DBS: Announced 2Q13 results which was in-line with street estimates, as net profit came in at $887m, (+10% y/y, -7% q/q) versus street estimates by Bloomberg of $883m. The result brings 1H13 net profit to $1.8b (+5%). Total income came in at $2.3b (+19% y/y, flat q/q), on back of stronger y/y contributions from non-interest income. Net interest income at $1.4b (+4% y/y, +4% q/q) was buoyed by underlying customer loans growth, which rose 14% to $234.8b, while net interest margins (NIMS) was largely stable, dipping 2 bps q/q to 1.62%. Non-interest income came in at $927m (+49% y/y, -6% q/q) buoyed by fee income of $477m (+26% y/y, -6% q/q), as all fee segments grew by double-digit percentage terms on a y/y basis, boosted by stronger contributions from the group’s wealth management and transaction services. Other non-interest income advanced to $450m (+86% y/y, -7% q/q) led by higher trading income, although compared to the previous quarter non-interest income fell as less favorable market conditions resulted in a decline in market-related fee income and market volatility in June resulted in lower trading gains. Overall, DBS fundamentals remain strong with capital adequacy ratios (CAR) maintained at 12.9% (Tier 1 ratio) and 15.5% (total CAR), above MAS’ minimum requirements. Separately, DBS announced that its attempt to buy Bank Danamon Indonesia has failed, the offer lapsed today. Not really surprising as a majority of the investors were already touting for the deal not to go through, with Bank Danamons share price dropping to a 14mth low yesterday. Most analysts are expecting muted response by the markets to the latest news, as most had already discounted the probability of the deal taking place. The question now is whether DBS would explore another asset in the region. Compared to the other SG banks, DBS is still lacking sizeable presence in Asean, esp in Indonesia and Msia. But at least for now, the end of the deal removes uncertainty over capital and could result in potential higher dividend payouts going forward. HSBC expects the stock reaction to be positive, noting that the proposed acquisition of Danamon would have had a negligible impact on DBS’s EPS and RoE in the short term without taking into account merger costs or synergies. With the current volatile economic conditions in Indonesia, believe the market will be relieved that this proposed takeover has lapsed. At current prices, DBS trades at 1.25x P/B