Morningstar | DBS Group Posts Solid 3Q Result on Higher Net Interest Income
Narrow-moat-rated DBS Group's third-quarter result was solid as expected, with net profit increasing 3% on last quarter. In line with peers, the positive trend in net profit was driven by an improvement in net interest margin as the normalisation of interest rates flowed through to higher interbank rates in both Singapore and Hong Kong. Management expects net interest income to continue to benefit from rising interest rates in 2019, and our assumptions continue to factor in a steady increase in net interest margin in the medium term. Loan growth of 1% on last quarter was offset by a decline in trade loans as the bank let some unprofitable positions roll off. Excluding the latter, loan growth of 2% on last quarter was strong and in line with peers. Year-to-date loan growth was 5%, and we continue to assume loan growth of 6.5% for the full year. Management guided for mid-single-digit loan growth for fiscal 2019 and noted the impact on trade tensions could be less material than market expectations, given the entrenched supply chains for high-end manufacturing in China. Time is needed to unwind the supply chains and relocate, and lower-end manufacturing is likely to be confined to the region.As reflected in softer equity markets in the region this quarter, management noted lower levels of capital market activities as investor sentiment weakened on concerns about trade. This has resulted in lower deals on the investment banking side, though the pipeline remains strong across both equity and debt capital markets. The completion of those deals will depend on capital market conditions in the coming quarters. Brokerage and wealth management revenue was also slightly weaker on trade concerns, but this is factored into our forecast. The bank's underlying wealth-management business continues to perform well, with assets under management rising 2% on last quarter to SGD 220 billion. Our fair value estimate of SGD 27 and 3-star rating are unchanged; we would require a larger margin of safety before recommending the bank.
DBS Group Holdings is an investment holding, treasury and funding vehicle for itself and its subsidiaries. Co.'s main subsidiary is DBS Bank Ltd, which is engaged in a range of commercial banking and financial services, principally in Asia. Co.'s various business segments are: Consumer Banking/ Wealth Management, which provides individual customers with a range of banking and related financial services; Institutional Banking, which provides financial services and products to institutional clients; as well as Treasury, which provides treasury services to corporations, institutional and private investors, financial institutions and other market participants.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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