[ET Net News Agency, 30 October 2019] J.P. Morgan lowered its target price for Dah Sing
Banking Group (DSBG)(02356) & Dah Sing Financial (DSF)(00440) to HK$11.7 and HK$36.8 (from
HK$13.5 and HK$45) and maintained its "neutral and "overweight" rating, respectively.
The research house reckoned that current valuations have priced in the crisis conditions
for the banking operation, for which the outlook is challenging, but not disastrous.
JPM said Dah Sing management maintained a mid-single-digit loan growth target, as trade
tension, rather than social unrest, remains the key driver of credit demand at its
corporate customers, so there was no material change in terms of loan growth momentum in
3Q versus 1H. DSBG China is expected to achieve double-digit growth in FY2019 but is not
likely to be a meaningful delta for the group due to its small portion.
NIM was relatively stable in 3Q, as part of the high-cost deposits in 1Q have gradually
matured and DSBG has not participated in the recent deposit competition. Management has
also not yet observed material deposit outflow, as general retailers are not very
sensitive to the political issues with regard to deposit allocations and corporate
deposits are mainly for settlement and cash management.
Although most of DSBG's corporate customers are SMEs, these are not the smaller
merchants that would be directly hit by the social unrest, according to management, so
there has not been meaningful asset quality deterioration as a result, although management
guided that unemployment would be a critical factor, while ECL (expected credit losses)
would inevitably be on the rise due to a weaker-than-expected macro outlook.
JPM said valuations are attractive for both names, but it retained its preference for
DSF over DSBG, given an unreasonable holding discount of 40% implied by current share
prices and potential increases in the ordinary cash payout ratios at DSF. (KL)