DBS

DBS: favoured by Deutsche over other two local banks. The three banks are releasing their 2Q earnings results on 31 July (UOB), 1 Aug (DBS) and 5 Aug (OCBC), seasonality declines are expected. Strong earnings results in 1Q brought about by low credit costs and non-recurring gains are unlikely to be repeated in 2Q. In fact, the industry experienced slower client trading and flow activities, lower NIMs, falling loan growth and deteriorating asset quality in 2Q and softer earnings are expected across all three banks. The house expects sound fundamentals for DBS and believes it is undervalued. UOB’s 10% YTD outperformance on DBS takes into consideration discount on DBS for dependence on China’s economy, but Deutsche thinks the impact should be limited and DBS is in fact well-positioned to ride on the next wave of growth in China. In Singapore, DBS is likely the key beneficiary of rate rise given their strong CASA and SGD deposit franchise. Valuation wise, DBS’s 1.2x 2014E P/B is the cheapest, compared to OCBC’s 1.3x and UOB’s 1.4x. Deustche gives BUY recommendation on DBS, sets TP at $17.43.