DBS

DBS: 4Q14 core net profit of $838m (+4% y/y, -17% q/q) fell short of estimates, weighed by a slowdown in non-interest income and a rise in provisions.

Net interest income was the bright spot, climbing 15% to $1.7b, driven by loan growth (+9.0%) from corporate borrowings, trade loans and secured consumer loans, and higher net interest margin of 1.71% (+10bps y/y, +3 bps q/q). Customer deposits rose 8% to $317.2m, setting the loan-to-deposit ratio at 86.9% (4Q13: 85.0%, 3Q14: 85.8%).

Non-interest income fell 4.4% to $666m, with net fee and commission income up 5% to $459m, led by investment banking (+26%) and Wealth Management (+15%), offset partially by trade and transaction services (-8%) and lower brokerage (-2%). Meanwhile, trading income fell 44% to $92m, due to lower treasury gains and customer flows.

Overall expenses rose 9% to $1.2b, from higher staff costs, partially offset by lower computerisation expenses, although the cost to income ratio was well contained at 48.1% (4Q13: 47.9%). Total provisions spiked up 40% to $211m, which was in line with the stronger loan growth.

Asset quality remained healthy, with NPL ratio at 0.9% (4Q13: 1.1%, 3Q14: 0.9%), while loan-loss coverage was at a historical high of 163%.

ROE inched down to 9.0% (4Q13: 9.7%, 3Q14: 11.2%) and capital adequacy ratios remained stable with fully-loaded CET1 CAR of 13.1% and Tier-1 CAR at 13.1%.

Management highlighted that despite some slowdown in the region, DBS has hit a new milestone, with full-year net profit exceeding $4b in FY14, which is testament to the strength and resilience of the group.

While overall earnings momentums till remains healthy, the choppy markets may create some ups and downs in market related activities. The group is also guiding for better NIMs and exchange translation to provide further upside for the group.

DPS of 30¢ declared, taking FY14 total payout to 58¢ (unchanged).

DBS trades at 1.31x P/B versus UOB’s 1.32x P/B and OCBC’s 1.45x.