Deutsche Bank Markets Research Rating

Company

Buy

DBS Group Holdings Ltd

Asia

Date

27 April 2015

Results

Singapore Banking / Finance

Banks

Reuters DBSM.SI

Bloomberg DBS SP

ADR Ticker DBSDY

ISIN US23304Y1001

Price at 27 Apr 2015 (SGD)

Exchange Ticker SES DBSM

20.89

Price target - 12mth (SGD)

23.20

52-week range (SGD)

21.19 - 16.65

Straits Times Index

1Q15 results: non-interest income a key, expect NIM pick-up the next

Franco Lam

Beat core estimates by 8%, multiple upcoming catalysts DBS's reported 1Q15 NPAT of S$1,269m (+51% QoQ, +3% YoY), represented 30% of our FY15E and was 21% above Bloomberg consensus – 8% above after stripping out property disposal gains in HK. While the stock was flat post 1Q15 this morning (after factoring in ex-div today), we see multiple catalysts materializing, providing key upside support to the share price. We maintain our Buy as we believe DBS continues to offer best risk-reward among SG banks.

Price/price relative

3,513

Research Analyst (+852) 2203 6226 [email protected]

23

21 20 18

Key highlights of results – fee and trading income surge Positives: non-interest income strength (+77% QoQ) was the key positive, with trading income (+2.9x QoQ) and strong fee income (+22% QoQ) – trade (+26% QoQ), loan related (+54% QoQ) and wealth management (+52% QoQ). Asset quality remained stable at 0.9% NPL, with lower QoQ annual credit cost at 32bp (4Q14: 38bp). Negatives: NIM dropped 2bp QoQ to 1.69% as interbank and securities yields fell with higher funding costs. NIM still looked quite resilient given a higher base effect and that it has seen a bigger improvement vs. peers – up 6bp during 2014 (peers: -1bp to +4bp). Loans grew 2% helped by currency effects (constant currency basis, little change). Overall LDR was stable at 88%. CET1 was fully loaded at 12.2% (4Q14: 11.9%). The SGD and all-currency liquidity coverage ratios were 424% and 131%, respectively, and the leverage ratio was 7.1%. For key details of the conference call, see page 3. Expect multiple catalysts for DBS ahead DBS remains our top pick among the Singapore banks, supported by more upside catalysts than peers: (1) best CASA franchise at 58% vs. peers, higher excess SGD deposits (SGD CASA at 90%) – better position once rates in the US pick up and more defensive from liquidity tightening with SGD LDR of 78%; (2) expecting better NIM support going forward on the back of SGD/SIBOR movements since 4Q14; and (3) USD currency strength should translate into more resilient earnings (through DBS HK) compared to its domestic SG peers. DBS is trading at a cheaper valuation of 1.3x P/B, 11% 2015E RoE. We base our target price on GGM. Downside risks: asset quality risk in India and Indonesia, severe property price correction.

17 15

14 4/13

10/13

4/14

10/14

DBS Group Holdings L Straits Times Index (Rebased)

Performance (%)

1m

3m

12m

Absolute

2.8

4.3

24.3

Straits Times Index

1.8

3.0

7.5

Source: Deutsche Bank

Stock data Market cap (SGDm)

51,998

Market cap (USDm)

39,014

Shares outstanding (m)

2,479.0

Major shareholders Free float (%) Avg daily value traded (USDm)

Temasek (28.13%) 72 58.1

Source: Deutsche Bank

Forecasts And Ratios Year End Dec 31 Net profit (SGDm) EPS (SGD) EPS growth (%) PER (x) Price/book (x) Yield (net) (%) ROE (%) ROE Adj(%)

2013A 3,492 1.43 3.1 11.3 1.27 3.6 10.8 10.8

2014A 3,839 1.56 9.2 11.3 1.40 3.3 10.9 10.9

2015E 4,321 1.74 11.5 12.0 1.32 2.9 11.2 11.2

2016E 4,882 1.96 12.5 10.7 1.22 3.1 11.7 11.7

Source: Deutsche Bank estimates, company data 1

DB EPS is fully diluted and excludes non-recurring items

2

Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close

________________________________________________________________________________________________________________ Deutsche Bank AG/Hong Kong Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 148/04/2014.

27 April 2015 Banks DBS Group Holdings Ltd Fiscal year end 31-Dec

Model updated:17 February 2015 Running the numbers

Asia Singapore Banks

DBS Group Holdings Ltd Reuters: DBSM.SI

Bloomberg: DBS SP

Buy SGD 20.89

Target Price

SGD 23.20

Market Cap (m)

2012

2013

2014

2015E

2016E

EPS (stated) (SGD) EPS FD (stated) (SGD) EPS FD (DB adj.) (SGD) Growth rate - EPS (stated) (%) DPS (SGD) BVPS (stated) (SGD) BVPS (DB adj.) (SGD) Average market cap Shares in Issue (m)

1.27 1.22 1.17 87.19 0.56 11.53 11.81 32,372 2,350

1.39 1.37 1.49 9.12 0.56 12.78 13.14 34,140 2,442

1.43 1.41 1.44 3.05 0.58 13.43 13.74 39,665 2,450

1.56 1.54 1.58 9.25 0.58 14.74 15.18 43,694 2,479

1.74 1.72 1.70 11.54 0.60 15.88 16.32 51,998 2,489

1.96 1.94 1.91 12.54 0.66 17.17 17.62 51,998 2,499

10.8 11.3 11.7 1.0 1.0 10.9 0.9 4.1 2.3 44.2

10.1 10.2 9.4 1.2 1.1 11.2 1.0 4.0 2.5 40.7

11.3 11.5 11.2 1.3 1.2 10.8 0.9 3.6 2.5 40.6

11.3 11.4 11.1 1.4 1.4 10.9 0.9 3.3 2.7 37.4

12.0 12.1 12.3 1.3 1.3 11.2 0.9 2.9 2.9 34.6

10.7 10.8 10.9 1.2 1.2 11.7 1.0 3.1 3.0 33.6

4,825 2,806 1,542 680 0 0 584 7,631 3,303 4,328 722 3,606 0 127 0 3,733 443 255 74 2,961 2,849

5,285 3,229 1,579 689 0 0 961 8,514 3,614 4,900 417 4,483 0 124 -450 4,157 588 210 9 3,350 3,630

5,569 3,529 1,885 1,095 0 0 549 9,098 3,918 5,180 770 4,410 0 79 -171 4,318 615 202 9 3,492 3,571

6,321 3,495 2,027 901 0 0 567 9,816 4,330 5,486 667 4,819 0 79 -198 4,700 713 139 9 3,839 3,940

7,062 3,705 2,180 901 0 0 624 10,767 4,708 6,058 869 5,190 0 79 0 5,269 790 149 9 4,321 4,254

7,960 4,012 2,395 919 0 0 699 11,972 5,089 6,883 1,010 5,873 0 79 0 5,952 893 168 9 4,882 4,815

213,722 296,930 197,827 232,311 28,178 6,220 27,535 13 8

215,591 314,712 213,828 258,059 31,574 6,220 30,196 14 9

238,081 355,647 252,181 300,992 33,267 6,220 32,648 14 8

264,186 387,623 279,154 322,813 36,905 6,220 34,703 13 8

276,502 416,023 302,131 348,638 39,919 6,220 37,533 14 8

292,394 448,123 328,536 376,529 43,349 6,220 40,780 14 9

1.5 107.0 0.4

1.3 121.4 0.2

1.2 117.7 0.3

0.9 141.9 0.3

1.0 135.6 0.3

1.2 121.5 0.3

11.7 10.4 2.1 8.0 12.9 4.5 -20.7 17.0 27.9 17.9 85.2 1.8 43.3 1.1 8.9

9.5 2.4 15.1 11.6 9.4 13.2 -42.2 0.9 8.1 11.1 82.9 1.7 42.4 1.0 8.1

5.4 19.4 9.3 6.9 8.4 5.7 84.7 10.4 17.9 16.6 83.8 1.6 43.1 1.0 12.0

13.5 7.5 -1.0 7.9 10.5 5.9 -13.4 11.0 10.7 7.2 86.5 1.7 44.1 1.0 9.2

11.7 7.6 6.0 9.7 8.7 10.4 30.2 4.7 8.2 8.0 86.7 1.7 43.7 1.0 8.4

12.7 9.8 8.3 11.2 8.1 13.6 16.3 5.7 8.7 8.0 87.3 1.7 42.5 1.0 7.7

Valuation Ratios & Profitability Measures

Price (27 Apr 15)

52 Week range

2011

Data Per Share

SGD 16.65 - 21.19 SGDm 51,998 USDm 39,014

Company Profile DBS Group Holdings Limited and its subsidiaries provide a variety of financial services. The company's services include mortgage financing, lease and hire purchase financing, nominee and trustee, funds management, corporate advisory and stockbroking. DBS Group also acts as the primary dealer in Singapore government securities.

P/E (stated) P/E FD (stated) P/E FD (DB adj.) P/B (stated) P/B (DB adj.) ROE (adj.) (%) ROA (adj.) (%) Dividend yield(%) Dividend cover(x) Payout ratio (%)

Profit & Loss (SGDm) Net interest revenue Non interest income Fees & Commissions Trading Revenue Insurance revenue Dividend income Other revenue Total revenue Total operating costs Pre-provision profit/(loss) Bad debt expense Operating Profit Goodwill Pre-tax associates Extraordinary & Other Items Pre-tax profit Tax Minorities Preference dividends Stated net profit DB adj. core earnings

Key Balance Sheet Items (SGDm) & Capital Ratios Risk-weighted assets Interest-earning assets Total loans Total deposits Stated shareholders equity Preference share capital Tier 1 capital Tier 1 ratio (%) Tangible equity/ total assets (%)

Credit Quality Gross NPLs / Total loans (%) Provisions / NPLs (%) Bad debt exp/ Avg loans (%)

Growth Rates & Key Ratios Growth in net interest income (%) Growth in fee income (%) Growth in non-interest income (%) Growth in revenues (%) Growth in costs (%) Pre-provision earnings growth (%) Growth in bad debts (%) Growth in RWA (%) Growth in loans (%) Growth in deposits (%) Loan-to-deposits ratio (%) Net int. margin (%) Cost income ratio (%) Cost asset ratio (%) Trading income/ Total Rev (%) Source: Company data, Deutsche Bank estimates

Franco Lam +852 2203 6226

Page 2

[email protected]

Deutsche Bank AG/Hong Kong

27 April 2015 Banks DBS Group Holdings Ltd

Conference call takeaways Loan growth up 2% QoQ but on constant currency terms flat QoQ  Expecting constant currency growth for 2015 to be 5-6%. 

Expecting contraction of trade loans to moderate in 2Q15. Trade finance has gone down on lower LC as offshore/onshore interest rates gap reduced. Trade assets have dropped from ~S$62bn to ~S$55bn. Trade book should stabilize now since onshore/offshore rates gap has increased again. Major of trade book is China related, i.e., S$28bn is China related and S$27m is not related.



Expecting weakness in trade finance lending to be offset by non-trade loan book looking healthy – corporate loans and Singapore mortgages. Strong performance seen in mortgages in SG with most demand coming from re-financing on account of fixed rate loan offerings.



The sporadic deal and restructuring activity has been increasing in Asia. Corporate activities such as these produce loan demand which benefited DBS.

NIM down 2bp QoQ but underlying NIM flat; higher NIM in 2Q15  Benefit from rising SIBOR/SOR not seen due to lag effect in SIBOR. SOR-based loans did benefit in 1Q15 but SIBOR-based loans to benefit from 2Q15. 

SOR-based loans benefited NIM by 3.5bp which was offset by a 3bp impact from lower average loans due to trade loans volume reduction and higher liquidity on the dollar book.



Expecting higher NIM in 2Q14 as SIBOR re-prices along with full impact of SOR re-pricing. In addition, expecting surplus liquidity funding to be reduced which should also provide upside.

Fee income growth seems sustainable  DBS expects the fee income growth to be sustained for 2015. The investment banking fees had not kicked in for which they see a good pipeline. Wealth management activity continues to show good traction. Asset quality benign  No systemic weakness across region with allowance coverage at ~161% and ~300% if collateral included. 

NPLs flat on a constant currency basis with increase on account of translation effect.



Expecting 2015 full-year specific loan provisions to be ~18bps vs. 22bp in 1Q 15.

Manulife deal  Would accrue S$106m annually as part of 15-year deal plus sales commissions.

Deutsche Bank AG/Hong Kong

Page 3

27 April 2015 Banks DBS Group Holdings Ltd



Page 4

Banc assurance has seen its importance for DBS grow. For 2015, DBS expects ~25% income from total wealth business from Banc assurance distribution.

Deutsche Bank AG/Hong Kong

27 April 2015 Banks DBS Group Holdings Ltd

Key operating trends Figure 1: 1Q15 results summary (S$m)

1Q14

4Q14

1Q15

QoQ (%)

Net interest income

1,488

1,674

1,690

1

14

Loans grew by 2% QoQ offset partly by NIM fall by 2bp to 1.69%

Non interest income

1,161

666

1,182

77

2

Ex-one off up +57% QoQ; Surged as fee income (+22% QoQ) and trading income (+2.9x QoQ)

o/w: Fees and commissions

510

459

560

22

10

Up on trade (+26% QoQ), loan related (+54% QoQ) and wealth management (+52% QoQ)

o/w: Other non interest income

651

207

622

200

-4

Total income

YoY (%) Comments

2,649

2,340

2,872

23

8

Operating expenses

-1,041

-1,126

-1,181

5

13

Pre-provisions profit

1,608

1,214

1,691

39

5

-151

-211

-181

-14

20

1,457

1,003

1,510

51

4

13

9

4

-56

-69

1,470

1,012

1,514

50

3

-199

-141

-215

52

8

-40

-33

-30

-9

-25

1,231

838

1,269

51

3

198

0

136

nm

-31

1,033

838

1,133

35

10

Gross loans

256,744

279,154

284,498

1.9

11

Customer deposits

301,490

317,173

324,480

2.3

bps QoQ

bps YoY

ROE

12.3

9.0

12.2

320

-10

ROA

1.02

0.77

1.02

25

0

NIM

1.66

1.71

1.69

-2

2

Cost/income

42.5

48.1

43.2

-495

69

Customer LDR

85.2

88.0

87.7

-34

252

Tier 1 capital

13.1

13.1

13.4

27

33

Total CAR

15.3

15.3

15.3

1

-3

Gross NPL ratio

1.0

0.9

0.9

1

-14

Ann. credit costs (bps)

30

38

32

-6

2

Credit costs Operating profit Associates Profit before tax Tax Minorities PATMI incl. one offs One offs Net profit excl. one offs

Higher staff costs

Down on lower general provisions as specific provisions similar QoQ

Balance Sheet (S$m)

Key ratios (%)

Loans driven by growth in HK (+7% QoQ), SG (+1% QoQ) with only Greater China (-4% QoQ) showing weakness

8 Driven by HKD (+19% QoQ) and SGD (+4% QoQ) deposits as CASA grew 4% QoQ with CASA mix at 58% (vs. 57% 4Q14)

Lower on high revenue growth

Fully loaded CET1 at 12.2%

Asset quality continues to be benign

Source: Deutsche Bank, Company data

Deutsche Bank AG/Hong Kong

Page 5

27 April 2015 Banks DBS Group Holdings Ltd

Figure 2: Breakdown of margin movement 1Q14

4Q14

1Q15

% chg QoQ

% chg YoY

Loan yield

2.49%

2.50%

2.55%

5bps

6bps

Deposit yield

0.72%

0.67%

0.69%

2bps

-3bps

Loan-deposit margin

1.77%

1.83%

1.86%

4bps

9bps

Interbank & securities asset yield

1.95%

2.11%

1.95%

-16bps

0bps

Interbank & other liabilities yield

1.03%

1.03%

1.02%

0bps

-1bps

Net interbank & securities margin

0.92%

1.08%

0.93%

-15bps

1bps

% chg YoY

The downtick in NIM majorly on account of a fall in interbank and securities yields along with higher deposits costs

Source: Deutsche Bank, Company data

Figure 3: Fee income trend (S$m)

1Q14

4Q14

1Q15

% chg QoQ

Stock broking

43

45

45

0%

5%

Investment Banking

43

54

26

-52%

-40%

Trade and remittances

140

115

145

26%

4%

Loan related

118

80

123

54%

4%

83

102

102

0%

23%

Wealth management

117

110

167

52%

43%

Others

-34

-47

-48

2%

41%

Total fee and commissions income

510

459

560

22%

10%

Credit card

Up on trade, loan related and wealth management income

Source: Deutsche Bank, Company data

Figure 4: Net trading income down QoQ (S$m)

1Q14

4Q14

1Q15

% chg QoQ

% chg YoY

Net trading income

362

92

356

287%

-2%

Non trading income

38

100

239

139%

529%

Others

251

15

27

80%

-89%

Total Other income

651

207

622

200%

-4%

Trading income up 2.9x QoQ boosting the non-interest income

Source: Deutsche Bank, Company data

Figure 5: Operating expenses up 1% QoQ (S$m)

1Q14

4Q14

1Q15

% chg QoQ

% chg YoY

557

610

672

10%

21%

Uptick on account of staff,

98

88

92

5%

-6%

technology and revenue

187

174

207

19%

11%

expenses up QoQ

Revenue related expenses

59

54

62

15%

5%

Other operating expenses

140

200

148

-26%

6% 13%

Staff costs Occupancy expenses Technology-related expenses

Total operating expenses

1,041

1,126

1,181

5%

Staff headcount (period end)

19,623

21,096

21,460

2%

9%

Cost to income ratio (ex abnormals)

42.5%

48.1%

43.2%

-495bps

69bps

Source: Deutsche Bank, Company data

Page 6

Deutsche Bank AG/Hong Kong

27 April 2015 Banks DBS Group Holdings Ltd

Figure 6: Loans by industry and geography (S$m)

1Q14

4Q14

1Q15

% chg QoQ

% chg YoY

Manufacturing

30,533

33,024

35,151

6%

15%

Building and construction

44,210

48,712

50,917

5%

15%

Housing loans

49,846

52,866

53,931

2%

8%

General commerce

53,753

56,658

52,959

-7%

-1%

Transportation, storage and communications

21,210

23,650

24,070

2%

13%

Financial institutions, investment and holding companies

14,339

16,168

16,925

5%

18%

Professional & private individuals (except housing loans)

20,555

23,849

24,244

2%

18%

Others

22,298

24,227

26,301

9%

18%

256,744

279,154

284,498

2%

11%

Singapore

119,264

129,167

130,809

1%

10%

Hong Kong

43,951

49,881

53,417

7%

22%

Rest of Greater China

48,744

50,865

48,984

-4%

0%

South and South-east Asia

23,911

25,446

26,490

4%

11%

Gross loans

By geography

Rest of the world Gross Loans

20,874

23,795

24,798

4%

19%

256,744

279,154

284,498

2%

11%

Source: Deutsche Bank, Company data

Figure 7: Loans and deposits by currency – LDR up QoQ S$m

1Q14

4Q14

1Q15

% chg QoQ

% chg YoY

101,651

109,493

112,367

3%

11%

HKD franchise registered

HK$

29,714

32,476

34,767

7%

17%

strong growth as loans +7%

US$

90,201

96,552

94,523

-2%

5%

Others

16,451

20,399

21,006

3%

28%

Gross loans

18,727

20,234

21,835

3%

28%

S$

S$

139,560

138,332

144,066

4%

3%

HK$

27,609

31,450

37,410

19%

35%

US$

83,376

93,445

92,374

-1%

11%

Others

21,319

20,463

18,968

-7%

-11%

Total deposits

29,626

33,483

31,662

-7%

-11%

chg QoQ

chg YoY

(%) S$

73

79

78

-1

5

HK$

108

103

93

-10

-15

US$

108

103

102

-1

-6

CNY

77

100

111

11

34

Others

63

60

69

11

34

LDR

85

88

88

0

3

QoQ and deposits +19% QoQ saw the HKD LDR below 100%

Source: Deutsche Bank, Company data

Deutsche Bank AG/Hong Kong

Page 7

27 April 2015 Banks DBS Group Holdings Ltd

CASA up 4% QoQ as CASA

Figure 8: Customer deposits (S$m)

1Q14

4Q14

1Q15

QoQ (bp)

YoY (bp)

Mix

Fixed deposits

125,809

130,904

133,950

2%

6%

41%

Savings deposits

112,750

119,753

123,867

3%

10%

38%

Current deposits

56,696

60,876

63,858

5%

13%

20%

6,235

5,640

2,805

-50%

-55%

1%

301,490

317,173

324,480

2.3%

8%

100%

56%

57%

58%

90bps

165bps

Other deposits Total CASA

mix improved to 58%

Source: Deutsche Bank, Company data

Figure 9: Capital ratios 1Q14

4Q14

1Q15

QoQ (bp)

YoY (bp)

Common equity tier one ratio

13.1%

13.1%

13.4%

27bps

33bps

Tier one ratio

13.1%

13.1%

13.4%

27bps

33bps

Total capital ratio

15.3%

15.3%

15.3%

1bps

-3bps

Source: Deutsche Bank, Company data

Figure 10: 1Q15 geographical P&L (ex-one off) (SG$m)

Singapore Hong Kong

SG business has offset by

Rest of China

South & South East Asia

ROW

Total

Net interest income

1,096

309

145

95

45

1,690

Non interest income

607

230

137

61

11

1,046

1,703

539

282

156

56

2,736

-674

-229

-171

-83

-24

-1,181

Credit costs

-40

-28

-39

-68

-6

-181

Associates

-2

0

4

2

0

4

PBT

987

282

76

7

26

1,378

Tax

-215

Total income Expenses

-155

-42

-6

0

-12

Minorities

-30

0

0

0

0

-30

Net profit

802

240

70

7

14

1,133

Net profit chg QoQ

27%

30%

79%

-124%

0%

35%

Net profit chg YoY

29%

-12%

-28%

-42%

-55%

10%

weakness from HK business as a result of margin pressure (-9bp QoQ) and lower fees from trading

Source: Deutsche Bank, Company data

Figure 11: LLP and specific provision charge rate

Figure 12: Gross NPL ratio

160

3.5

140

2.8 2.92.7 2.6

3.0

120

2.0

% 1.5

40

1.5 1.5 1.4 1.4 1.3 1.2 1.11.0

1.0

Source: Deutsche Bank, Company data

1Q15

3Q14

1Q14

3Q13

1Q13

3Q12

1Q12

3Q11

1Q11

3Q10

3Q09

1Q09

Loan loss provision rate

0.0 3Q08

Specific provision charge rate

0.5

1Q08

1Q07 2Q07 3Q07 4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15

0

1Q07

20

1Q10

60

3Q07

bps

2.0

80

Page 8

2.3 2.1 1.9 1.8 1.5 1.31.31.31.31.3 1.21.21.21.21.1 1.0 0.90.90.90.9

2.5

100

Source: Deutsche Bank, Company data

Deutsche Bank AG/Hong Kong

27 April 2015 Banks DBS Group Holdings Ltd

Figure 13: Provision coverage

Figure 14: NPA formation trends 1.2 500

50 1.0

5

-200

1Q13

4Q12

3Q12

2Q12

1Q12

4Q11

3Q11

2Q11

-400

Write-offs

Figure 16: DBS NII and NIM (quarterly) 6,321

6,000 5,285

5,569

4.00%

2,000

3.50%

1,800

3.00%

4,825

2.50% 4,000 1.70%

3,000

1,600

2,000

1.00%

1.69%

1.80%

1,674

1,690

1.60% 1.40% 1.20% 1.00%

1,000

0.80%

800

0.60%

600

0.40% 0.20%

400

0

0.00%

200

NII

1,602

1,557

1.71%

1,200

0.50%

2013

1,488

1.68%

1.67%

1,400

1,000

2012

1.66%

2.00%

1.68%

1.62%

1.50%

2014

0.00% 1Q14

2Q14

NIM

3Q14 NII

Source: Deutsche Bank, Company data

4Q14

1Q15

NIM

Source: Deutsche Bank, Company data

Figure 17: DBS Non-interest income (yearly)

Figure 18: DBS Non-interest income (quarterly)

4,000

1200 3,359

3,500

1046 3,297 1000

2,806

963

912

2,779 1,580

2,500 1,213

666

447

250

429 63

327

400

1,270

200

384 74

1,200

1,473

453 253

0

57

115

1,000 1,264

503

440

600 306

329

756

800 1,700

1,329

2,000

500

-173 -229

-260

Source: Deutsche Bank, Company data

7,000

2011

-104 -174

-180

New NPAs

Figure 15: DBS NII and NIM (yearly)

1.77%

-53

-266

General provision coverage

Source: Deutsche Bank, Company data

1,500

-33 -37 -51 -69 -215

1Q11

1Q15

3Q14

1Q14

3Q13

1Q13

3Q12

1Q12

3Q11

1Q11

3Q10

1Q10

3Q09

1Q09

3Q08

1Q08

3Q07

1Q07

0.0

Specific provision coverage

3,000

-61 -107

-112

-300

0

5,000

-40

-100

1Q15

0.2

50

0

4Q14

10

231

112

3Q14

0.4

15

133 121

108 91

273 158

2Q14

20

100

212 161

291 275

4Q13

0.6

25

200

242

3Q13

30

349 268

300

2Q13

0.8

35

NPA formation (S$m)

40

412

400

GP coverage (%)

SP coverage (%)

45

1Q14

55

75

486

357

207

0 2011

Trading + other

2012

Brokerage and IB fee

Source: Deutsche Bank, Company data

Deutsche Bank AG/Hong Kong

2013

Other fee income

2014

1Q14

Trading + other

2Q14

3Q14

Brokerage and IB fee

4Q14

1Q15

Other fee income

Source: Deutsche Bank, Company data

Page 9

27 April 2015 Banks DBS Group Holdings Ltd

Figure 19: DBS operating expenses (yearly) 5,500

45%

43%

Figure 20: DBS operating expenses (quarterly) 45%

44%

50%

1,800

45%

1,600

40%

1,400

35%

1,200

30%

1,000

4,330

4,500

3,918 3,614 3,303

3,500

2,036

2,500

1,853

1,726

1,591

25% 20%

1,500 2,294

2,065

1,888

1,712

15% 10%

500

5% 2011

-500

2012

Staff expenses

2013

Other expenses

2014

4,000

1.2%

1.5% 0.9%

2,590 0.0%

46%

11%

43%

48%

12%

10%

57%

69%

2014

1Q15

0 2011 Source: Deutsche Bank, Company data

Page 10

10% 0% 557

554

573

610

672

1Q14

2Q14

3Q14

4Q14

1Q15

200

-10%

0

-20%

Other expenses

Cost/Income

2012

19 17

15.5

15

Tier 2

2.6

15.9

16.3 15.3

2.6

2.6 2.2

15.7

15.6

15.3

15.3

2.2

2.2

2.2

1.9

11 -1.0%

9%

-1.5%

54%

20%

-0.5% 21%

1,000

>90 days overdue 500

516

536

509

13

43% 31%

6%

40%

1181

30%

400

Total 0.5%

2,726

2,500

<90 days overdue

1.0%

2,996

2,904

1,500

1126

1109

600

Staff expenses

1.1% 0.9%

40%

50%

43%

Figure 22: DBS capital ratios

2,513

Not overdue 2,000

500

484

48% 44%

Source: Deutsche Bank, Company data

3,500

NPA (S$m)3,000

1054

1041

Cost/Income

Figure 21: DBS asset quality trends NPL ratio

42%

800

0%

Source: Deutsche Bank, Company data

1.3%

60% 46%

2013

9 1 Tier

-2.0%

7

-2.5%

5

12.9

13.3

13.7

13.1

13.5

13.4

13.1

13.4

Jun 13

Sep 13

Dec 13

Mar 14

Jun 14

Sep 14

Dec 14

Mar 15

Source: Deutsche Bank, Company data

Deutsche Bank AG/Hong Kong

27 April 2015 Banks DBS Group Holdings Ltd

Valuation We base our valuation and target price on a Gordon Growth Methodology (i.e. PB=ROE-g/COE-g), with a COE assumption of 9% and a terminal growth rate of 3%, reflecting the long-term GDP growth prospects of Singapore as a developed economy in Asia. Our ROE assumption is 12%, based on the average of our explicit three-year forecast. This yields a target P/B ratio of 1.5x. Applying this ratio to our one-year forward estimate of book value, we arrive at our target price. Figure 23: PE band chart

Figure 24: PB band chart

25

2.5

+2SD 20.3x

+2SD 2x

2.0

20

15

1.5

Mean 1.3x

x

x

Mean 13x

1.0

10

5

0.5

-2SD 5.8x

-2SD 0.6x

0.0

Sep-01 Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15

Sep-01 Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15

0

Source: Deutsche Bank

Source: Deutsche Bank

Figure 25: PPOP band chart

Figure 26: Dividend yield band chart 8.0

14.0

+2SD 12.2x 7.0

12.0

+2SD 5.6x

6.0 10.0

5.0

%

4.0 3.0

6.0

Mean 3.4x

2.0 1.0

-2SD 1.2x Jul-14

Oct-12

Mar-12

Jan-11

Aug-11

Jun-10

Apr-09

Nov-09

Sep-08

Jul-07

Feb-08

Dec-06

Oct-05

May-06

Mar-05

Jan-04

Aug-04

Jun-03

Nov-02

Apr-02

Sep-01

Sep-01 Mar-02 Sep-02 Mar-03 Sep-03 Mar-04 Sep-04 Mar-05 Sep-05 Mar-06 Sep-06 Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Source: Deutsche Bank

0.0

Feb-15

-2SD 4x 2.0

Dec-13

4.0

May-13

x

Mean 8.1x 8.0

Source: Deutsche Bank

Risks The key downside risks for DBS are represented by other ASEAN exposures in India and Indonesia. Given that 2% of DBS’s PBT comes from South and Southeast Asia, the potential growth and asset quality concerns could negatively affect the bank’s earnings. Other potential downside risks include a severe property price correction that could affect the asset quality of the bank.

Deutsche Bank AG/Hong Kong

Page 11

27 April 2015 Banks DBS Group Holdings Ltd

Appendix 1 Important Disclosures Additional information available upon request Disclosure checklist Company

Ticker

Recent price*

Disclosure

DBS Group Holdings Ltd

DBSM.SI

20.89 (SGD) 27 Apr 15

1,7,14,15

*Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr.

Important Disclosures Required by U.S. Regulators Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States. See Important Disclosures Required by Non-US Regulators and Explanatory Notes. 1.

Within the past year, Deutsche Bank and/or its affiliate(s) has managed or co-managed a public or private offering for this company, for which it received fees.

7.

Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment banking or financial advisory services within the past year.

14. Deutsche Bank and/or its affiliate(s) has received non-investment banking related compensation from this company within the past year. 15. This company has been a client of Deutsche Bank Securities Inc. within the past year, during which time it received non-investment banking securities-related services.

Important Disclosures Required by Non-U.S. Regulators Please also refer to disclosures in the Important Disclosures Required by US Regulators and the Explanatory Notes. 1.

Within the past year, Deutsche Bank and/or its affiliate(s) has managed or co-managed a public or private offering for this company, for which it received fees.

7.

Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment banking or financial advisory services within the past year.

For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/Disclosure.eqsr?ricCode=DBSM.SI

Analyst Certification The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject issuer and the securities of the issuer. In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. Franco Lam

Page 12

Deutsche Bank AG/Hong Kong

27 April 2015 Banks DBS Group Holdings Ltd

Historical recommendations and target price: DBS Group Holdings Ltd (DBSM.SI) (as of 4/27/2015) 25.00

Previous Recommendations Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating

3 20.00

2

Security Price

1 15.00

Current Recommendations Buy Hold Sell Not Rated Suspended Rating

10.00

5.00

0.00 Apr 13

*New Recommendation Structure as of September 9,2002

Jul 13

Oct 13

Jan 14

1.

23/09/2013:

Buy, Target Price Change SGD19.50

2.

06/08/2014:

Buy, Target Price Change SGD20.30

Apr 14

Date

Equity rating key Buy: Based on a current 12- month view of total share-holder return (TSR = percentage change in share price from current price to projected target price plus pro-jected dividend yield ) , we recommend that investors buy the stock. Sell: Based on a current 12-month view of total shareholder return, we recommend that investors sell the stock Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell. Notes: 1. Newly issued research recommendations and target prices always supersede previously published research. 2. Ratings definitions prior to 27 January, 2007 were:

Jul 14

3.

Oct 14

Jan 15

04/01/2015:

Buy, Target Price Change SGD23.20

Equity rating dispersion and banking relationships 450 400 350 300 250 200 150 100 50 0

52 % 39 % 22 %

Buy

22 % Hold

Companies Covered

9%

17 %

Sell

Cos. w/ Banking Relationship

Asia-Pacific Universe

Buy: Expected total return (including dividends) of 10% or more over a 12-month period Hold: Expected total return (including dividends) between -10% and 10% over a 12month period Sell: Expected total return (including dividends) of -10% or worse over a 12-month period

Deutsche Bank AG/Hong Kong

Page 13

27 April 2015 Banks DBS Group Holdings Ltd

Regulatory Disclosures 1.Important Additional Conflict Disclosures Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the "Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.

2.Short-Term Trade Ideas Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the SOLAR link at http://gm.db.com.

Page 14

Deutsche Bank AG/Hong Kong

27 April 2015 Banks DBS Group Holdings Ltd

Additional Information The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively "Deutsche Bank"). Though the information herein is believed to be reliable and has been obtained from public sources believed to be reliable, Deutsche Bank makes no representation as to its accuracy or completeness. Deutsche Bank may consider this report in deciding to trade as principal. It may also engage in transactions, for its own account or with customers, in a manner inconsistent with the views taken in this research report. Others within Deutsche Bank, including strategists, sales staff and other analysts, may take views that are inconsistent with those taken in this research report. Others within Deutsche Bank, including strategists, sales staff and other analysts, may take views that are inconsistent with those taken in this report. Deutsche Bank issues a variety of research products, including fundamental analysis, equity-linked analysis, quantitative analysis and trade ideas. Recommendations contained in one type of communication may differ from recommendations contained in others, whether as a result of differing time horizons, methodologies or otherwise. Analysts are paid in part based on the profitability of Deutsche Bank AG and its affiliates, which includes investment banking revenues. Opinions, estimates and projections constitute the current judgment of the author as of the date of this report. They do not necessarily reflect the opinions of Deutsche Bank and are subject to change without notice. Deutsche Bank has no obligation to update, modify or amend this report or to otherwise notify a recipient thereof if any opinion, forecast or estimate contained herein changes or subsequently becomes inaccurate. This report is provided for informational purposes only. It is not an offer or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy. Target prices are inherently imprecise and a product of the analyst’s judgment. The financial instruments discussed in this report may not be suitable for all investors and investors must make their own informed investment decisions. Prices and availability of financial instruments are subject to change without notice and investment transactions can lead to losses as a result of price fluctuations and other factors. If a financial instrument is denominated in a currency other than an investor's currency, a change in exchange rates may adversely affect the investment. Past performance is not necessarily indicative of future results. Unless otherwise indicated, prices are current as of the end of the previous trading session, and are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank, subject companies, and in some cases, other parties. Macroeconomic fluctuations often account for most of the risks associated with exposures to instruments that promise to pay fixed or variable interest rates. For an investor who is long fixed rate instruments (thus receiving these cash flows), increases in interest rates naturally lift the discount factors applied to the expected cash flows and thus cause a loss. The longer the maturity of a certain cash flow and the higher the move in the discount factor, the higher will be the loss. Upside surprises in inflation, fiscal funding needs, and FX depreciation rates are among the most common adverse macroeconomic shocks to receivers. But counterparty exposure, issuer creditworthiness, client segmentation, regulation (including changes in assets holding limits for different types of investors), changes in tax policies, currency convertibility (which may constrain currency conversion, repatriation of profits and/or the liquidation of positions), and settlement issues related to local clearing houses are also important risk factors to be considered. The sensitivity of fixed income instruments to macroeconomic shocks may be mitigated by indexing the contracted cash flows to inflation, to FX depreciation, or to specified interest rates – these are common in emerging markets. It is important to note that the index fixings may -- by construction -- lag or mis-measure the actual move in the underlying variables they are intended to track. The choice of the proper fixing (or metric) is particularly important in swaps markets, where floating coupon rates (i.e., coupons indexed to a typically short-dated interest rate reference index) are exchanged for fixed coupons. It is also important to acknowledge that funding in a currency that differs from the currency in which coupons are denominated carries FX risk. Naturally, options on swaps (swaptions) also bear the risks typical to options in addition to the risks related to rates movements. Derivative transactions involve numerous risks including, among others, market, counterparty default and illiquidity risk. The appropriateness or otherwise of these products for use by investors is dependent on the investors' own circumstances including their tax position, their regulatory environment and the nature of their other assets and Deutsche Bank AG/Hong Kong

Page 15

27 April 2015 Banks DBS Group Holdings Ltd

liabilities, and as such, investors should take expert legal and financial advice before entering into any transaction similar to or inspired by the contents of this publication. The risk of loss in futures trading and options, foreign or domestic, can be substantial. As a result of the high degree of leverage obtainable in futures and options trading, losses may be incurred that are greater than the amount of funds initially deposited. Trading in options involves risk and is not suitable for all investors. Prior to buying or selling an option investors must review the "Characteristics and Risks of Standardized Options”, at http://www.optionsclearing.com/about/publications/character-risks.jsp. If you are unable to access the website please contact your Deutsche Bank representative for a copy of this important document. Participants in foreign exchange transactions may incur risks arising from several factors, including the following: ( i) exchange rates can be volatile and are subject to large fluctuations; ( ii) the value of currencies may be affected by numerous market factors, including world and national economic, political and regulatory events, events in equity and debt markets and changes in interest rates; and (iii) currencies may be subject to devaluation or government imposed exchange controls which could affect the value of the currency. Investors in securities such as ADRs, whose values are affected by the currency of an underlying security, effectively assume currency risk. Unless governing law provides otherwise, all transactions should be executed through the Deutsche Bank entity in the investor's home jurisdiction. United States: Approved and/or distributed by Deutsche Bank Securities Incorporated, a member of FINRA, NFA and SIPC. Non-U.S. analysts may not be associated persons of Deutsche Bank Securities Incorporated and therefore may not be subject to FINRA regulations concerning communications with subject company, public appearances and securities held by the analysts. Germany: Approved and/or distributed by Deutsche Bank AG, a joint stock corporation with limited liability incorporated in the Federal Republic of Germany with its principal office in Frankfurt am Main. Deutsche Bank AG is authorized under German Banking Law (competent authority: European Central Bank) and is subject to supervision by the European Central Bank and by BaFin, Germany’s Federal Financial Supervisory Authority. United Kingdom: Approved and/or distributed by Deutsche Bank AG acting through its London Branch at Winchester House, 1 Great Winchester Street, London EC2N 2DB. Deutsche Bank AG in the United Kingdom is authorised by the Prudential Regulation Authority and is subject to limited regulation by the Prudential Regulation Authority and Financial Conduct Authority. Details about the extent of our authorisation and regulation are available on request. Hong Kong: Distributed by Deutsche Bank AG, Hong Kong Branch. Korea:

Distributed

by

Deutsche

Securities

Korea

Co.

South Africa: Deutsche Bank AG Johannesburg is incorporated in the Federal Republic of Germany (Branch Register Number in South Africa: 1998/003298/10). Singapore: by Deutsche Bank AG, Singapore Branch or Deutsche Securities Asia Limited, Singapore Branch (One Raffles Quay #18-00 South Tower Singapore 048583, +65 6423 8001), which may be contacted in respect of any matters arising from, or in connection with, this report. Where this report is issued or promulgated in Singapore to a person who is not an accredited investor, expert investor or institutional investor (as defined in the applicable Singapore laws and regulations), they accept legal responsibility to such person for its contents. Japan: Approved and/or distributed by Deutsche Securities Inc.(DSI). Registration number - Registered as a financial instruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho) No. 117. Member of associations: JSDA, Type II Financial Instruments Firms Association, The Financial Futures Association of Japan, and Japan Investment Advisers Association. Commissions and risks involved in stock transactions - for stock transactions, we charge stock commissions and consumption tax by multiplying the transaction amount by the commission rate agreed with each customer. Stock transactions can lead to losses as a result of share price fluctuations and other factors. Transactions in foreign stocks can lead to additional losses stemming from foreign exchange fluctuations. We may also charge commissions and fees for certain categories of investment advice, products and services. Recommended investment strategies, products and services carry the risk of losses to principal and other losses as a result of changes in market Page 16

Deutsche Bank AG/Hong Kong

27 April 2015 Banks DBS Group Holdings Ltd

and/or economic trends, and/or fluctuations in market value. Before deciding on the purchase of financial products and/or services, customers should carefully read the relevant disclosures, prospectuses and other documentation. "Moody's", "Standard & Poor's", and "Fitch" mentioned in this report are not registered credit rating agencies in Japan unless Japan or "Nippon" is specifically designated in the name of the entity. Reports on Japanese listed companies not written by analysts of DSI are written by Deutsche Bank Group's analysts with the coverage companies specified by DSI. Some of the foreign securities stated on this report are not disclosed according to the Financial Instruments and Exchange Law of Japan. Malaysia: Deutsche Bank AG and/or its affiliate(s) may maintain positions in the securities referred to herein and may from time to time offer those securities for purchase or may have an interest to purchase such securities. Deutsche Bank may engage in transactions in a manner inconsistent with the views discussed herein. Qatar: Deutsche Bank AG in the Qatar Financial Centre (registered no. 00032) is regulated by the Qatar Financial Centre Regulatory Authority. Deutsche Bank AG - QFC Branch may only undertake the financial services activities that fall within the scope of its existing QFCRA license. Principal place of business in the QFC: Qatar Financial Centre, Tower, West Bay, Level 5, PO Box 14928, Doha, Qatar. This information has been distributed by Deutsche Bank AG. Related financial products or services are only available to Business Customers, as defined by the Qatar Financial Centre Regulatory Authority. Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute, any appraisal or evaluation activity requiring a license in the Russian Federation. Kingdom of Saudi Arabia: Deutsche Securities Saudi Arabia LLC Company, (registered no. 07073-37) is regulated by the Capital Market Authority. Deutsche Securities Saudi Arabia may only undertake the financial services activities that fall within the scope of its existing CMA license. Principal place of business in Saudi Arabia: King Fahad Road, Al Olaya District, P.O. Box 301809, Faisaliah Tower 17th Floor, 11372 Riyadh, Saudi Arabia. United Arab Emirates: Deutsche Bank AG in the Dubai International Financial Centre (registered no. 00045) is regulated by the Dubai Financial Services Authority. Deutsche Bank AG - DIFC Branch may only undertake the financial services activities that fall within the scope of its existing DFSA license. Principal place of business in the DIFC: Dubai International Financial Centre, The Gate Village, Building 5, PO Box 504902, Dubai, U.A.E. This information has been distributed by Deutsche Bank AG. Related financial products or services are only available to Professional Clients, as defined by the Dubai Financial Services Authority. Australia: Retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any decision about whether to acquire the product. Please refer to Australian specific research disclosures and related information at https://australia.db.com/australia/content/research-information.html Australia and New Zealand: This research, and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act and New Zealand Financial Advisors Act respectively. Additional information relative to securities, other financial products or issuers discussed in this report is available upon request. This report may not be reproduced, distributed or published by any person for any purpose without Deutsche Bank's prior written consent. Please cite source when quoting. Copyright © 2015 Deutsche Bank AG

Deutsche Bank AG/Hong Kong

Page 17

David Folkerts-Landau Group Chief Economist Member of the Group Executive Committee Raj Hindocha Global Chief Operating Officer Research Michael Spencer Regional Head Asia Pacific Research

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Ralf Hoffmann Regional Head Deutsche Bank Research, Germany

Richard Smith and Steve Pollard Co-Global Heads Equity Research

Andreas Neubauer Regional Head Equity Research, Germany

Steve Pollard Regional Head Americas Research

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