DBS Shares Gain to Record After Quarterly Profit Beats Estimates

(Bloomberg) -- DBS Group Holdings Ltd., Southeast Asia's largest lender, delivered a decade-high return that came along with above-expectations quarterly profit. The stock gained over 2 percent.

Return on equity at 13 percent rose from some 11 percent a year ago and net income climbed 26 percent to S$1.52 billion ($1.15 billion) in the three months ended March, the Singapore-based company said Monday in an exchange filing.

Led by Chief Executive Officer Piyush Gupta, DBS is the first of Singapore's big banks to report earnings for the quarter. Rising local interest rates are helping the lenders charge more for loans, and DBS is earning higher wealth management fees after acquisitions helped it expand services for millionaires in Asia.

DBS results “beat expectations on net interest income and depreciation of credit cost,” Marcus Chua, an analyst at Nomura Holdings Inc. “ROE was quite a surprise for the fact that it came in at 13 percent so fast, so early. The market will react well and the consensus target price of the stock should continue to increase.”

The shares rallied as much as 2.2 percent as of 9:09 a.m. in Singapore, the most since April 18 and taking them to the highest since at least 1986.

ROE Surged

Net income climbed 26 percent from a year earlier. That compares with the S$1.4 billion average estimate in a Bloomberg survey of five analysts. Including one-time items, net profit rose 21% to S$1.51 billion. Return on equity surged to 13 percent, the highest in a decade, DBS said.

While saying ROE at 13 percent is “achievable” in the latest annual report, Gupta had declined to say when that would happen. Singapore banks' average ROE is currently 11.6 percent, according to data compiled by Bloomberg.

Net interest margin, a gauge of lending profitability, is on track to stay at least 1.85 percent as the outlook of higher U.S. interest rates will pass through to the local benchmarks, Gupta said in a presentation accompanying the results. That would be 10 basis points above the 2017 NIM at 1.75 percent.

“Our pipeline is healthy and we expect to continue capturing business opportunities and delivering shareholder returns in the coming year,” Gupta said.

Loan Growth

Net interest income rose 16 percent from a year earlier to S$2.13 billion, driven by loan growth and the increase in benchmark borrowing costs. The three-month Singapore interbank offered rate reached its highest level since 2008 in January.

Allowances for bad assets fell 18 percent to S$164 million. DBS's surprise decision in the third quarter of 2017 to clean up its loan book reduces the need to set aside large provisions for soured debts, allowing it to focus on making money from wealth and other businesses.

“DBS margin strength should continue as Singapore and Hong Kong rates take their cue from U.S. rates. Given the substantial cleanup of its book in the third quarter, asset quality should remain supportive for DBS to generate superior returns this year,” said Bloomberg Intelligence analyst Diksha Gera.

Earnings Highlights

• Net interest margin gained 9 basis points from a year earlier to 1.83 percent
• Loans expanded 10 percent to S$328 billion
• Wealth management fees increased 49 percent to S$331 million
• Return on equity at 13 percent from 11 percent a year ago
• Nonperforming loan ratio rose to 1.6 percent from 1.4 percent
• Nonperforming assets fell to S$5.82 billion
• Cost-to-income ratio fell to 41.6 percent

Shares of DBS have risen 23 percent this year, the most among local banks and extending last year's 43 percent rally. Investors are attracted by last year's shareholder returns of 47 percent, more than double the 22 percent return from the Straits Times Index.

United Overseas Bank Ltd. is scheduled to report earnings on May 3 and Oversea-Chinese Banking Corp. will follow on May 7.

To contact the reporter on this story: Chanyaporn Chanjaroen in Singapore at cchanjaroen@bloomberg.net.

To contact the editors responsible for this story: Marcus Wright at mwright115@bloomberg.net, Russell Ward, Colin Keatinge

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