DBS Group gamble leads to record profits: OCBC

It bet big on Wealth and SME, and both profit segments posted double-digit income growth for 1Q12.

Their sterling performances for the latest recorded quarter helped bring DBS Group to S$933 million in net earnings, which beat market expectations and the company's previous high.

Here's more from OCBC:

DBS Group Holdings reported 1Q12 net earnings of S933m, up 28% QoQ or 16% YoY. The improvement was broad-based and also led by an increase in Non-interest Income contribution (+31% QoQ to S$820m) as well as a 4% QoQ rise in Net Interest Income to S$1.34b. After several quarters of decline, Net Interest Margin (NIM) improved four basis points from 1.73% in 4Q 2011 to 1.77% in 1Q 2012. Its focus on Wealth and SME is paying off, with strong double-digit gains for both units. As the earnings are fairly in line with our expectations, we made some adjustments to our FY12 estimates, upping net earnings from S$3069m to S$3138m, largely to reflect better fee income. We are maintaining our BUY rating and fair value estimate of S$15.40.

1Q12 net earnings of S$933m – a record high DBS Group Holdings (DBS) reported 1Q12 net earnings of S933m, another record high, and above Bloomberg consensus estimate of S$755m. This reflected earnings growth of 28% QoQ or 16% YoY. The improvement was broad-based and also led by an increase in Noninterest Income contribution (+31% QoQ to S$820m) as well as a 4% QoQ rise in Net Interest Income to S$1.34b. On the former, good growth came from Wealth Management (+39% QoQ), Stockbroking (+24%) and Loan-related (+22%).

After several quarters of decline, Net Interest Margin (NIM) improved four basis points from 1.73% in 4Q 2011 to 1.77% in 1Q 2012. Loans grew 3%, and loan-deposit ratio was healthy at 85%. Total treasury income also grew 44% QoQ to S$662m. As a reflection of the growing regional operation, regional net earnings rose 50% QoQ to S$196m. For its Greater China business, it now accounted for about 24% of total Hong Kong income versus an average of 17% in 2011. Overall, it was a good set of quarterly results.

Emphasis on Wealth and SME is paying off. Its focus on Wealth and SME is paying off, as seen from the recent set of results. On the Wealth front, income hit S$203m in 1Q12, up 20% QoQ and 44% YoY. Total earnings assets reached S$107b, up 4% QoQ and 18% YoY. For the SME segment, this also reported very strong double-digit growth this quarter, up 19% QoQ and 30% YoY to S$326m. 

Reiterate BUY; maintain fair value estimate of S$15.40 Following the announcement of the acquisition of Bank Danamon, the stock has come under some selling pressure (refer to our report dated 3 April 2012). There is no further update, and the acquisition is still pending regulatory approvals. As the 1Q12 earnings are fairly in line with our expectations, we made some adjustments to our FY12 estimates largely to reflect better fee income, upping net earnings from S$3069m to S$3138m. We are maintaining our BUY rating and fair value estimate of S$15.40.