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vivivava
Veteran |
18-Jan-2018 11:59
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The recent upturn in Singapore economy led to a surge in local banks&rsquo share price. Generally seen as the bellwether of the economy, bank stocks are extremely sensitive to economy conditions. South-East Asia largest bank, DBS, is no exception. The share price stormed to record high of $26.60, an impressive level not seen even during the boom years preceding the Great Financial Crisis. The power surge of the share price had created much wealth for many wealth builders, including DBS CEO who bought 200,000 shares for $2.8 million in February 2016. For the man in the street, $2.8 million is lot of money. But for Piyush Gupta, his annual pay package in FY2016 was already $8.4 million. His purchase of DBS shares back then was driven by his conviction that the shares were grossly undervalued. Indeed, his move was vindicated as the bank&rsquo s share price climbed by almost 100% within two years. If Gupta had held the shares from February 2016 till now, he would have made a profit of almost $2.8 million. With the bullish form of the share price, it is indeed tempting to purchase DBS shares. However, it is important to review the financial performance and assess whether the price is worth the value. After all, price is what you pay and value is what you get when it comes to stock investing. DBS financial performance 3Q2017 To be honest, the third quarter 2017 results had been disappointing for DBS, not least because of the toxic loans issued to the ailing oil and gas companies. Although it is easy to use the allowances and non-performing loans as scapegoats for the dismal performance, the management should take some blame for not diversifying the revenue sources like what OCBC had done. Net profit for third quarter 2017 was $822 million. The profit had been dragged down by significant net allowances of $815 million as residual weak oil and gas support services exposures were classified as non-performing assets (NPAs). As compared to OCBC&rsquo s net profit of $1.06 billion for third quarter 2017, DBS&rsquo financial performance was of course inferior. But the question at the back of many investors&rsquo mind should be whether DBS has managed to contain the festering wound of toxic loans issued to oil and gas companies. Make no mistake, both DBS and OCBC had about the same amount of NPA &ndash $3 billion. But it seems pretty annoying that DBS had to keep making allowances for NPAs. The allowance charge of $815 million for the quarter represented an explosive increase of 87% year-on-year. Such statistics really doesn&rsquo t inspire much confidence for investors. 
As at 30 September 2017, oil and gas support services non-performing assets for DBS amounted to $3.0 billion, for which cumulative specific allowances of $1.5 billion have been made. If the oil slump persisted in 2018, DBS still has outstanding specific allowances of $1.5 billion. To be more conservative, I would expect a few more quarters of additional allowance charges before the situation stabilized for DBS. It is still early to claim that the nightmare of the oil slump is over. Of course, it is not all doom and gloom for DBS. Net interest income rose to $1.975 billion for third quarter 2017, an increase of 9% year-on-year. For those who are unfamiliar with the banking industry, net interest income is a key metric for reviewing bank&rsquo s financial performance. It is the margin earned by banks arising from the difference between revenues generated by interest-bearing assets and the cost of servicing the liabilities. To explain in layman terms, when you deposit your income into your bank saving account, there will be saving interests given to you. From the bank&rsquo s perspective, the interests given to you are a form of liability. To cover the interest costs, the bank would have to use your money to generate a return higher than your saving interests in order to cover the costs. To do so, one of the simplest ways is to lend out the money to other customers through housing and business loans. Could 2018 be a boom year? Financial data indicated strong business momentum for DBS. Compared to the previous quarter, total income was 5% higher, led by growth in net interest income and fee income. Year-on-year basis, net interest income increased 9% to $1.98 billion. Loans rose 8% or $24 billion to $314 billion, which included $6 billion from the consolidation of the Singapore, Hong Kong and China operations of the wealth management and retail banking business acquired from ANZ. Given that underlying growth was broad-based across corporate, trade and Singapore housing loans, DBS performance for third quarter 2017 would have been pretty decent if not for the allowances. Cash flow was a negative $4.1 billion for third quarter 2017. This means that the operating activities burned up $4.1 billion instead of generating cash. The outflow was due to higher loans issued to customers, bank and corporate securities. Whether the loans would turn out to be assets or non-performing assets depend largely on the rate of interest hikes and business condition in 2018. If customers were unable to repay the loan, then DBS would be hit for sure. But I am cautiously optimistic that the business climate would be moderately bullish for 2018, so DBS&rsquo loan exposure should be healthy. In 2016, DBS net asset value (NAV) was only $16.68 and it made sense for the CEO to purchase the bank shares at $13.88. With the current price at $26 level, the potential for upside is limited as the NAV is merely $17.40. It seems that the share price has gone up fast and furious. My analysis could be wrong. After all, in an inflated environment, even a mediocre performance could fuel share price to an absurd level. But whether such price is sustainable remains to be seen. You don&rsquo t want to be caught with your pants down when the music stopped. Thus, it is important to set safety margins and determine the entry levels you are comfortable with. The challenges ahead Under Gupta&rsquo s helm, DBS has grown reasonably well since the Great Financial Crisis in 2009. Revenue rose from $8.3 billion in 2013 to cross the $10 billion mark in both 2015 and 2016. But the achievement came at price as DBS was fined $1 million by Monetary Authority of Singapore (MAS) in 2016 for lapse in control of money laundering. In the aftermath of the stunning collapse of Swiber Group, DBS was also forced to admit that its loan exposure to Swiber amounted to $700 million and that it expected to recover about only half the amount. The reason for the loan exposure being so concentrated to one company is beyond me. After all, this is DBS, the largest bank in South-East Asia. To be frank, Swiber is not even in the league of Keppel or SembCorp. In this regard, my opinion is that DBS management should strengthen the risk management on the loan exposure and raise the quality of the loan portfolio. In conclusion, I am not convinced that the coast is clear to invest in DBS shares at the moment. The management has not demonstrated that it has mitigated the downside risks effectively. Even if so, the price has run up so high that potential for upside is limited as well. Gupta has made his millions already. What makes you think that he would let you join in the fun? Don&rsquo t assume that you can swim with the whales. SG WEALTH BUILDER |
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moneyspinner
Veteran |
08-Dec-2017 16:18
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DBS is the most bullish stock for STI for now! Looks like going to break $25 soon! 
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famouspinky
Supreme |
07-Dec-2017 16:27
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5/12 up. 7/12 down. Lol. Sgporeans sgporeans, think bunglok will be crowded soon
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Immortal
Master |
07-Dec-2017 16:25
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DBS has broken down from the min-box and now entering back to the long term channel which is super bearish in my opinion. Plus now that Trump has recognized Jerusalem as Capital of Israel will add to the volatiity and I expect this volatility to last for 2 months. Maybe wrong but want to protect profits. In cash now. |
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Immortal
Master |
05-Dec-2017 09:28
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DBS is posied to break out of the min-box....once break out, expect to cheong up further
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Immortal
Master |
04-Dec-2017 14:55
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think DBS may just explode upwards soon since price touches the support line and bounced up....plus futures are all up a lot now | ||||
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destinykraze
Elite |
30-Nov-2017 13:58
Yells: "Reality is only a matter of perception" |
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It is recovering slowly. | ||||
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leongyan
Master |
30-Nov-2017 12:47
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went up from 22.xx to 25.. what do you expect?
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destinykraze
Elite |
30-Nov-2017 10:59
Yells: "Reality is only a matter of perception" |
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Price went up too fast, healthy correction expected. | ||||
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chanbs
Elite |
30-Nov-2017 10:36
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Erratic lately whats happening ? Sell down at 24.36/7 |
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gchan516
Master |
28-Nov-2017 16:16
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24.63 - 24.64 good support today ... possible entry point as well | ||||
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chanbs
Elite |
28-Nov-2017 11:52
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Decoupling from the other 2 ... | ||||
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Immortal
Master |
21-Nov-2017 20:41
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Moving up strongly to year end and then sell | ||||
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ricourean
Member |
17-Nov-2017 16:21
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Volume is not high. Beware double top formation
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investshare
Supreme |
17-Nov-2017 15:46
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$200m
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leex0025
Senior |
17-Nov-2017 15:37
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this?? http://www.businesstimes.com.sg/companies-markets/dbs-sees-double-digit-growth-from-consumer-and-sme-business-in-singapore-hong-kong
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gchan516
Master |
17-Nov-2017 15:25
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something good brewing ... just dunno wat | ||||
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Immortal
Master |
17-Nov-2017 14:18
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Wonderful breakout
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gchan516
Master |
17-Nov-2017 14:01
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as i was saying ... some good news in the making
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investshare
Supreme |
17-Nov-2017 10:39
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$100m already.
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