SINGAPORE (Feb 7): DBS will be announcing its 4Q18 and FY18 earning on Feb 18.
UOB Kay Hian is forecasting 4Q18 net profit to increase 8.0% y-o-y to $1.29 billion.
In a Thursday report, analyst Jonathan Koh says, “We expect double-digit growth in net interest income of 10.1% y-o-y, which offsets the decline in contributions from wealth management fees (-3.1% y-o-y) and net trading income (-47.4% y-o-y).”
The research house is keeping its “buy” call on DBS with a target price of $28.50.
Loan growth is expected to grow by 6.6% y-o-y in 4Q18, in line with toned down guidance of 6-7% for FY18.
But loan growth on a y-o-y basis is expected to moderate due to a high base with loans expanding 2.8% q-o-q in 4Q17. This was driven by non-trade corporate loans although consumer loans were flat q-o-q while trade loans continued to contract q-o-q, albeit at smaller magnitude compared to 3Q18.
“We expect continued but gradual NIM expansion of 1 basis point (bp) q-o-q to 1.87% in 4Q18 due to DBS’s strong deposit franchise for the Singapore dollar,” says Koh.
NIM is also forecast to increase 9bps y-o-y, generating healthy double-digit growth for net interest income of 10.1% y-o-y to $2.31 billion.
Moreover, the analyst reckons that wealth management fees would suffer from risk-off flight, with the fees expected to drop 1.3% y-o-y and 9.7% q-o-q to $627 million.
This came on the back of a weakened market sentiment due to the US-China trade war, causing high net worth clients to be more risk adverse, hence a steep decline in wealth management fees.
“We expect net trading income to have dropped 47.4% y-o-y to $120 million due to losses from gapping (unexpected inversion at short-end of yield curve). 4Q18 was a difficult quarter with many global banks reporting trading losses due to widening of credit spreads,” says Koh.
The research house predicts that the group will maintain its cost efficiency, with cost-to-income ratio (CIR) for 4Q18 expected to drop by 0.2 percentage points (ppt) to 44.1%, bringing CIR for FY18 to 43.6%.
As at 11.10am, shares in DBS are trading at $24.42 or 1.3 times FY19 book with a dividend yield of 5.0%.
