February 12, 2018

Loans growth was c.7% higher YoY as housing loans continued the strong QoQ growth momentum. DBS share of Singapore mortgage loans edged higher to 30.8% from 28.7% in June 2017. Rates and volume growth for trade assets was robust helped by the strengthening of RMB.

4Q17 WM income was S$534mn (+26.5% YoY) but was 2.2% lower QoQ due to a seasonally weak 4Q. 4Q17 Retail income growth was flat YoY but grew 5.7% QoQ following a generally weak performance from 1Q17 through to 3Q17. SME banking was a bright spot, growing 16.2% YoY and 2.8% QoQ on the strong business expectations and PMI reading in Singapore and continued strength in Chinese consumer sentiment.  Provision expense has normalised after the major clean-up in 3Q17. The normalisation of the provision expense in 4Q17 was a pleasant surprise as we had expected a carryover of higher provision expense from the 3Q17 clean-up. We believe the normalisation is an indication that the clean-up in 3Q17 was sufficient to clear the path a stronger asset quality performance in 2018.

The final onetier tax exempt dividend was increased to S$0.60 per share from S$0.30 per share in 2016. In addition, a special dividend of S$0.50 per share was also announced. Barring any unforeseen circumstances, the proposed annual dividend moving ahead will be raised to S$1.20 per share, double the annual rate of S$0.60 per share in 2016. The S$1.20 per share dividend represents a c.50% dividend pay-out ratio based on FY18e earnings and a dividend yield of c.4.5% at current share price.

CIR expected to be stable at 43%. We had expected CIR to improve slightly in FY18. However management has guided it to be stable at 43% in FY18. This is due to the integration of Indonesia and Taiwan markets from the ANZ acquisition. Indonesia and Taiwan businesses’ CIR is between 60% and 80%. Excluding these 2 businesses, CIR would have been 42.5%. Maintain BUY rating with unchanged target price of S$29.30 by Philips Securities Research. Share price closed at S$27.310