DBS net profits fell below market expectations

It's more than $20m short of the consensus.

4Q12 was below expectations due to greater-than-expected NIM compression, a rise in credit costs and higher opex, said CIMB.

Reflecting seasonality, IB and trade fees were weak though wealth management and credit cards.

Some of the negatives look are one-off in nature, notes CIMB but it adds that they are not too concerned.

"4Q12 core net profit (S$760m) fell below our S$807m and Street’s S$787m. FY12 forms 98% of our FY12. DBS has guided for bottoming margins. We trim FY13-14 EPS by 2-3% but maintain Outperform with a slightly higher DDM-based target price (1.27x CY13 P/BV; g 4.2%) after trimming margins. Catalysts are still expected from a variety of fee earnings drivers."

Here's more from CIMB:

Net interest income was flat qoq as NIM contracted another 5bp to 1.62%. Loan volumes were up 4% qoq, while LDR edged up to 87%. Hong Kong
margins were stable (+1bp). Margin contraction in China (regulatory driven) carried over from earlier quarters. Management’s guidance on margins was surprisingly bullish - margins could be close to a bottom as the yield curve steepens.

Loan growth came mostly from Singapore and Rest of Greater China; sector-wise, the growth was led by building & construction and general commerce.
Higher costs, allowances Seasonal effects took their toll on IB and trade fees, though decent credit-card, wealth-management and trading income compensated, so non-NII was better than expected.

Better revenue was, however, doused by higher costs and provisions. Costs went up mostly on computerisation costs. 4Q cost ratio rose to 48%. Provisions climbed 50% qoq, both from general and specific allowances.

While this was a broad-based scrub of its loan book, management did say provisions should trend up from current low levels.

Higher computerisation costs and weak IB fees appear to be more seasonal and/or one-off. The more structural negative was rising credit costs, but we expect that to be an industry trend. Unrelenting margin squeeze is the more company-specific negative, but the guide for bottoming margins sounds like a reprieve.

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