Broker's take: OCBC, RHB to review call on DBS on worse-than-expected results

Shares in DBS traded at S$22.77 as at 10.13am on Monday morning, down 20 Singapore cents or 0.87 per cent from its previous close.
Shares in DBS traded at S$22.77 as at 10.13am on Monday morning, down 20 Singapore cents or 0.87 per cent from its previous close. PHOTO: REUTERS

SINGAPORE - Two brokerages, OCBC Investment Research and RHB Research, are reviewing their rating and target price for DBS after the bank on Monday morning (Nov 6) announced a 25 per cent drop in third-quarter earnings from the previous year.

Excluding one-time items such as a S$21 million ANZ integration cost, DBS's net profit stood at S$822 million, 23 per cent lower from the preceding period.

This was "below expectations", said RHB analyst Leng Seng Choon in a note. He noted that the S$822 million core net profit represented 18 per cent of RHB's earnings forecast for 2017, and 17 per cent of the consensus forecast.

DBS also raised specific allowances for credit and other losses to S$815 million, 87 per cent higher than the S$436 million it recorded a year ago.

The group said that it accelerated the recognition of residual weak cases as non-performing assets so as to remove uncertainty about its asset quality.

Apart from the substantial spike in allowances, overall results were fairly healthy and in line with expectations, said OCBC analyst Carmen Lee.

But RHB noted that while DBS's total income rose 5 per cent from the previous quarter, its net interest margin narrowed quarter on quarter by one basis point to 1.73 per cent - unlike the widening recorded by its peers.

Mr Leng said that the brokerage will review its earnings forecasts, "neutral" call and S$20.65 target price after the analyst briefing later on Monday.

Ms Lee observed that the stock has done well and has gained some 12.7 per cent since she last upgraded it on Sept 14. "We expect some initial knee-jerk share price reaction to the higher-than-expected Q3 2017 allowances, especially in view of the recent good price outperformance," she said.

Shares in DBS traded at S$22.77 as at 10.13am on Monday morning, down 20 Singapore cents or 0.87 per cent from its previous close.