Key takeaways from recent non-deal road show in the US
We recently hosted DBS NDR, with management also presenting at our Global Financials conference in New York.
The key areas of interests/questions raised during the investor meetings were as follows:
Financial guidance: Seeing steady fundamentals
■ NIM: Given a lagged impact, the SGD lending book should continue to benefit in the coming quarter from higher SIBOR while funding costs have recently eased in HK post 1Q15, with improved offshore Rmb liquidity.
■ Non-interest income: has been a key strength, focuses in cash mgt/treasury, WM. The WM success so far has come from its lower than peers CTI ratio, ability to bring products in single platform, the growing wealth in the region, supported by strong credit rating of the bank.
■ Cost-to-income: Continuing to invest in technology and digital banking platform, the bank hopes to achieve cost efficiencies and eventually driving more revenues, hopefully achieving a lower CTI in longer run.
■ Asset quality: expects to remain overall benign, with resiliency in Singapore, with few pockets of deterioration in other geographical region but likely offset by lower bad debt charges in India this year. The bank remains watchful on its SME book for any potential signs of vulnerability.
■ Capital: While seeing rising capital ratios globally, we expect the bank remains prudent in DPS payout in near-term. But we see its capital remains sufficient, supported by a prudent RwA/Asset ratio vs. peers.
■ Loan growth: While loan growth remains a key challenge for DBS as well as the sector (e.g. mid-single digit in 2015), the loan pipeline remains strong despite some unwinding of trade loans seen in prior quarter.
■ Geographical footprint: While HK&SG remain the bulk of group earnings (e.g. 82%), these franchises should provide good leverages to China, India and Indonesia, higher growth markets in long run – by focusing in large corporate, SME business, affluent banking, supported its digital footprint.
DBS remains our top pick in Singapore, more upside catalysts
DBS is our top pick in the sector (Pecking order: DBS, OCBC and UOB), supported by earnings resiliency, more upside catalysts (best geographically position in higher US rates, WM and recent strength in USD) than peers. (Read Report)
Source : Deutsche Bank Markets Research