Maintain

BUY

Previous Rating: BUY

S$12.84

Fair Value: S$14.65

Stock Code:

Reuters: DBSM.SI

ISIN Code: D05

Bloomberg: DBS SP

Event: Results

Better than expected 2Q09 results. DBS Group posted 2Q09 net earnings

of S$552m, down 15% YoY but +27% QoQ, and were above the median

estimate in a Bloomberg survey of S$425m. Net Interest Income improved

5.1% YoY or 3.3% QoQ to S$1112m in 2Q09. From the fee income side,

the best performers were its Stockbroking (+28%YoY and +79% QoQ),

Investment-related (+59% QoQ), Wealth Management (+31% QoQ) and

Fund Management (+20%QoQ) units. Cost-to-income ratio also improved

from 42.5% in 2Q08 to 38.4% in 1Q09 and then to a significantly lower

35.2% by 2Q09. Non Interest Income rose 22% YoY and 16% QoQ to

S$680m.

As expected, impairment charges remained high. This surged from

$90m in 2Q08 to $437m in 1Q09 and $466m by 2Q09 (OCBC of S$104m

and UOB of S$465m for 2Q09). Net Interest Margin (NIM) was better QoQ,

but down YoY. It improved from 1.99% in 1Q09 to 2.01% in 2Q09. The

group has declared a dividend of 14 cents for this quarter. For 1H09, the

group posted earnings of S$985m or 46% of our revised FY09 forecast.

Upping FY09 and FY10 estimates. With improving economic prospects,

we have revised our earnings estimates. While we expect impairment

charges to remain high, we believe that 1Q and 2Q were the peak quarters

and impairment charges should come off in 3Q and 4Q. We are projecting

lower charges of S$567m in 2H09 versus S$903m in 1H09. In addition,

with the rally in the equity market, we expect capital market activities and

fee-based income to improve and we have raised our estimates for 2H09.

Overall, we are increasing FY09 earnings from S$1572m to S$2128m. For

FY10, we have also upped our estimates from S$1965m to S$2401m.

Maintain BUY, raised fair value estimates to S$14.65. Together with

the improved economic outlook, although uncertainty still remains and

unemployment is still high in the US, valuations for the three local banking

stocks have also moved up higher. To reflect this trend, we are raising our

valuation peg from 1.2x to 1.4x book and this in turn raises our fair value

estimate from S$12.40 to S$14.65. At this price, valuation is 15.7x FY09

earnings and 13.9x FY10 earnings. Assuming that the group maintains its

14 cents per quarter dividend payout, annual yield is fairly decent at 4.4%

based on current price. We are maintaining our BUY rating on DBS

I strongly agree, I plan to buy more if its price dip further.

I will allocate 30% of my bullet in this stock.