DBS' dazzling Q1 results help push STI past 3,400

SINGAPORE - Singapore banks play a key role in the benchmark Straits Times Index's decisive push past the psychologically important 3,400 level this week.

In particular, DBS Group Holdings dazzled investors with better-than-expected first-quarter earnings of $950 million over a week ago.

It had analysts tripping over one another in their rush to praise the bank. "It is a strong set of results with solid quality growth which, in our view, should bode well for the stock," said Goldman Sachs analyst Melissa Kuang in her report.

"DBS enjoyed strong growth in loans, treasury customer flows, trade and loans-related fees to a record first quarter," said CIMB's Kenneth Ng in a separate report.

Investors applauded its performance and chased its share price sharply higher. Yesterday, it ended 20 cents higher at $17.90.

This brought its gain since it reported its first-quarter results on May 2 to $1.14, or 6.8 per cent, adding $2.78 billion to its market value.

There is no denying that DBS has done well, considering the stiff competition it faces in the crowded local banking sector and across the region in big markets such as Hong Kong and China.

Its impressive performance had come in the wake of a steady stream of lacklustre results reported by some global lenders. French banking giant Societe Generale, for example, reported a 50 per cent drop in first-quarter profit to €364 million (S$586 million), while German lender Commerzbank said it suffered a quarterly loss of €94 million.

Indeed, while it basked in investors' favour, Standard Chartered Bank fell 4.4 per cent on Wednesday, after it made a rare admission of "weaker performance" in two core Asian markets - South Korea and Singapore.

There is also the "flight to safety" consideration in viewing the run-up in DBS' share price. The lender is one of the best-capitalised banks in the world and counts Temasek Holdings as its biggest shareholder with a 28 per cent stake.

Yield-hungry pension funds may be scouring the world for high dividend bank stocks. But the recent banking crisis in Cyprus is still fresh on their minds. They are also painfully aware that making the wrong bet can cause them a whopping loss if they are not careful. That makes a stock like DBS doubly attractive to them, considering its pedigree and earning prowess.

Still, there may be grounds for caution, especially after the recent sharp run-up enjoyed by Singapore banks. In a recent report, Credit Suisse analyst Anand Swaminathan said "it would be too optimistic to extrapolate the strength of the first quarter to the rest of the financial year."

Bank managements have provided conservative guidance for the rest of the year in view of the evolving economic uncertainties, and with the recent rally in Singapore banks, it is difficult to justify further upside, he added.

engyeow@sph.com.sg

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