Brokers’ take

Compiled by Navin Sregantan

DBS GROUP HOLDINGS

| BUY (MAINTAINED)

APRIL 11 CLOSE: $26.93

TARGET PRICE: $29.60

RHB Research Institute, April 10

Home mortgage interest rates, which are pegged to fixed deposit rates or fixed deposit home rate (FHR), saw increases in January and March. The effect is significant as half of DBS' home mortgages are FHR-based.

We should see some net interest margin (NIM) widening in Q1 2019 arising from the January mortgage rate rise.

The March mortgage rate rise will likely raise NIM from Q2.

Rising Singapore interbank offered rate will help raise lending yields for business loans.

Home mortgage growth is weak but growth from business lending is expected to stay respectable.

Management guided for mid-single digit 2019 loan growth - our forecast is 5 per cent.

High Q1 2018 base for wealth management fees seen to cap year-on-year growth for Q1 2019. Our long-term return on equity (ROE) assumption is 13.5 per cent.

In February, management guided for 2019 ROE is 12.5 per cent, assuming there are no Fed rate hikes this year.

Digitisation efforts could contribute to further ROE enhancement over the next few years.

Downside risks to our forecasts include higher impairment charges and weaker-than-expected NIM.

FIRST REIT

| ADD (MAINTAINED)

APRIL 11 CLOSE: $0.995

TARGET PRICE: $1.20

CGS-CIMB, April 10

First Reit's Q1 FY2019 distribution per unit of 2.15 cents is in line with our expectations, at 24.4 per cent of our fiscal 2019 forecast.

First Reit's portfolio remained stable and its weighted average lease to expiry stands at 8.3 years.

First Reit has a robust balance sheet, and we believe it can continue to pursue acquisitive growth opportunities.

Although we have tweaked down our cost of equity assumption to 8.1 per cent (from 8.4 per cent previously) due to a change in risk-free rate outlook, this is offset by a lower terminal growth assumption of 1.1 per cent.

We expect First Reit's share price to be underpinned by a high FY2019 dividend yield of 8.9 per cent, while awaiting further clarity of its geographic diversification plans, as well as confirmation of a master lease extension for four of its Indonesia properties beyond 2021.

The latter could catalyse a re-rating of the stock.

Downside risks include non-renewal or a change in the terms of the master lease.

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