DBS downgraded by Maybank KimEng on macro headwinds

DBS ATM in SingaporeDBS ATM in Singapore

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

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.

Maybank KimEng said the results were in line with its forecasts, but ahead of consensus estimates.

“This testifies to its post-GFC (Global Financial Crisis) structural evolution from a trading-oriented universal bank to a less cyclical commercial bank,” Maybank KimEng said in a note Monday. “Yet second quarter of 2019 total non-performing loans increased 3.3 percent year-on-year — the fastest since the third quarter of 2017 – pointing to trade war-related macro headwinds, particularly in Singapore, Hong Kong/China and Southeast Asia.”

The note pointed to bad loans in the manufacturing, building and construction and general commerce sectors as showing “notable advances.” Combined with the brokerage’s bearish house outlook for the region due to the trade war, recession fears in Singapore and uncertainty in Hong Kong and China, the concerns spurred the brokerage to raise its estimates for 2019-20 provisioning costs by 38 percent to 50 percent.

The brokerage cut its 2019-2021 earnings forecasts by 5 percent to 7 percent, lowering its target price to S$28.05 from S$29.46.

Shares of DBS were down 0.49 percent at S$26.51 at 2:54 P.M. SGT.

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