Broker's take: Nomura maintains 'buy' on DBS shares

NOMURA in a report on Tuesday reiterated its "buy" rating on shares of DBS with a target price of S$24.30 (representing a 25 per cent upside from the current price), following the bank's release of its fourth-quarter and full-year earnings on early Tuesday morning.

In the report, Nomura analyst Jaj Singh said that DBS's Q4 FY2014 net profit of S$838 million was in line with the consensus estimate, though 8 per cent below Nomura's.

The difference between DBS's results and Nomura's estimate was mainly due to lower trading income, which Mr Singh described as "volatile".

"We believe investors will welcome these results as key operating numbers, such as net interest margin (NIM), loan growth and non-performing loans, were strong," he pointed out.

Loan growth, for instance, drove net interest income up by 15 per cent year-on-year (y-o-y) and 4 per cent quarter-on-quarter (q-o-q). The 11 per cent y-o-y loan growth was a pleasant surprise, said Mr Singh, as the previous quarter had only shown an 8 per cent y-o-y increase.

Moreover, NIM rose 10 basis points y-o-y and three basis points q-o-q, the latter an impressive feat considering how interest rates during the quarter were relatively flat, noted Mr Singh.

"With short-term interest rates starting to move up, we believe this bodes well for DBS as it offers the bank strong operating leverage. We will review our estimates after all the Singapore banks have reported their results," he added in the report.