Analyst briefings: DBS 2Q19 earnings

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DBS reported Monday its second quarter net profit jumped 20 percent on-year to S$1.60 billion on corporate loan growth, a higher net interest margin, record fee income and improved trading performance.

Shares of DBS were down 0.68 percent at S$26.46 at 3:53 P.M. SGT.

These are analyst calls on the results.

Maybank KimEng

Maybank KimEng downgraded DBS to Hold from Buy, citing increased uncertainty from slower economic growth, potential interest rate cuts and “souring asset quality.”

Read more: DBS downgraded by Maybank KimEng on macro headwinds

RHB

RHB downgraded DBS to Neutral from Buy on expectations the bank’s net interest margin (NIM) likely hit its peak in the second quarter.

Read more: RHB downgrades DBS on expectations net interest margins hit their peak

CGS-CIMB

CGS-CIMB cut its NIM forecasts for 2019-21 by 1-3 basis points to factor in potential rate cuts from the U.S. Federal Reserve, spurring 1-3 percent cuts to its 2019-21 earnings per share estimates.

“While residual repricing effects of the bank’s fixed rate housing loans (25 percent of mortgages) could buffer some of the rate cut impact, pricing pressure from lower rates may weigh on asset yields nonetheless,” the brokerage said in a note Monday.

CGS-CIMB lowered its target price by a tad to S$27.59 from S$27.64, and kept a Hold call on the stock.

“We remain optimistic that non-interest income engines, such as wealth management and transaction-related income, should remain fairly resilient, buffering the impact from Fed rate cuts,” the brokerage said.

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Daiwa

The DBS franchise has been “holding up well so far,” Daiwa said in a note Monday, adding second quarter net profit beat its forecast by 6 percent.

“The second quarter of 2019 beat was due to another good quarter of trading and the second half of 2019 net profit growth is likely to remain positive but slow down year-on-year on more moderate net interest income growth,” Daiwa said.

The investment bank said it was making “minimal changes” to its core earnings per share forecasts for 2019-21, which are around 2-4 percent above the Bloomberg consensus, and raised its target price slightly to S$27.60 from S$27.00. It kept a Hold call.

“Although DBS is probably more vulnerable to a negative tail risk than its peers, we believe its ability to sustain earnings growth is probably under-appreciated by the market,” Daiwa said.

UOB KayHian

UOB KayHian increased 2019 net profit forecast by 2.7 percent to factor in the stronger second quarter results.

“We see the impact of lower interest rates offset by improved cost efficiency,” the brokerage said in a note Tuesday.

UOB KayHian kept a Buy call and raised its target price to S$31.30 from S$30.50.

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