• 4Q19 revenue and PATMI were in line with estimates.
• Net profit grew 10% YoY on stellar trading income almost quadrupling to $224mn from $59mn in 4Q18 while NII and fee income growing a modest 2% apiece YoY.
• 4Q NIM fell 4bps YoY to 1.76% despite stable asset yield and funding costs a result of increased interest-bearing liabilities from growth of customer deposits YoY (+3% YoY).
• Proposed final dividend of 75 cents; consisting of 55 cents core dividend and 20 cents of special dividend, bringing dividend for FY19 to $1.30 per share (+8% YoY). This brings dividend yield to c.5.0% based on current price.
• Maintain ACCUMULATE with an unchanged target price of S$27.80. We hold FY20e stable after factoring headwinds in previous quarters.

Positives

+ 4Q trading income quadrupled YoY. With a recovery in market conditions, trading income leapfrogged on gains from investment securities and better customer-related flow income, buoying slower growth from NII and fee income, both of which grew +2% YoY. Slight increase in NII was a result of modest growth in loans of 3% YoY despite a NIM compression of 4 bps while fee income was held up by WM fees (+42% YoY), offsetting lower loan-related fees (-25% YoY).

Negatives

– 4Q CIR rose to 45.9% from 44.4% YoY. IT-related expenses grew 36% YoY on continued investments in to grow connectivity in order to boost long-term efficiency among franchises. Staff-related costs grew in tandem with growth in income due to performance-related staff costs. Moving forward, the bank aims keep CIR stable with a paced investment approach.

– Allowances rose 14% YoY on impaired loans. Asset quality remains benign with NPA growing a moderate 2% YoY due to a lower base in 4Q18. Credit costs rose 4 bps to 24 bps from a year ago but full year credit costs came in below expected range of 20-25 bps at 18 bps. NPL remains low at 1.5%, unchanged YoY.

Outlook

Active stance to de-risk North Asia exposure may insulate impact of short-term risks. On expectations of greater headwinds arising from Greater China, the bank has been actively managing exposures to the region to reduce short-term risks. Total Greater China exposure stands at 15% of total assets, while potential vulnerable industries within Hong Kong making up $5bn or 8% of total Greater China exposure. Majority of loan tenor are also below 1 year, and NPL ratio remains at respected levels of below 1%.

Sluggish growth from global uncertainty. NIM compression will stunt NII growth in FY20e and non-interest income may also be dented from weaker market sentiments with outbreak of Covid-19 outbreak.

Investment Actions

Maintain ACCUMULATE with an unchanged target price of S$27.80.  We expect stability in earnings for FY20e that was revised downwards in the previous quarter.