"Maintain 'buy'. Target price: $29.50," says Jonathan Koh in a 4Q results preview report on Monday.
UOB expects DBS to report loan growth of 7.3% y-o-y and 2.8% q-o-q in 4Q17. The sequential expansion was broad-based and driven by corporate loans, trade loans and residential mortgages.
"We expect NIM to edge up 2bp q-o-q to 1.75% due to the turnaround in SIBOR and SOR since 3Q17," says Koh.
Fees are also expected to increase 25% y-o-y driven by wealth management and credit cards. On a sequential basis, wealth management and loans-related fees were seasonally softer.
"We expect net trading income to be seasonally lower at $150 million," adds the analyst.
DBS has cleaned up its books and already utilised its surplus general provisions in 3Q17.
"We expect NPL formation to ease and NPL ratio to stabilise at 1.74% in 4Q17 after kitchen sinking in 3Q17. Specific provisions could have declined 39% y-o-y to $262 million. We expect credit cost to recede to 38.6bp in 4Q17," says Koh.
DBS has a robust, fully loaded Common Equity Tier-1 (CET 1) capital adequacy ratio (CAR) of 13.6%.
Management is also expected to disclose the new dividend policy when DBS announces 4Q17 results on Feb 8, given that Basel III reforms were finalised in Dec 17.
Shares in DBS are up 5 cents at $26.38 or 13 times FY18 earnings.
