Published May 12, 2009

Analysts divided over DBS's ability to uphold payouts

Dividend reflects the underlying earnings, says bank

By SIOW LI SEN

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ANALYSTS are divided over DBS Group Holdings' ability to maintain its dividend policy despite paying out 14 cents per share, unchanged from the previous quarter.

One analyst even linked last Friday's divestment of DBS's 2.7 per cent stake in India's HDFC Bank to its dividend policy.

Michael Sia, head of DBS investor relations, said that the sale is not linked to its dividends.

'We have a portfolio of investments, we adjust the portfolio from time to time; this was an opportune time to lock in the gains,' said Mr Sia.

He said that the dividend reflects the underlying earnings 'for the quarter we had very decent results'.

Morgan Stanley analyst Matthew Wilson said: 'Maintaining the dividend at 14 cents per share was a bold measure, given the earnings composition.'

The dollar payout equates to $320 million, which is 175 per cent of cash earnings (excluding trading profits), he said.

Mr Wilson sees a risk that the dividend will be cut as DBS's non-interest income is volatile. Non-interest income was up 65 per cent quarter-on-quarter, driven by gains in trading.

'Perhaps the May 8 divestment of DBS's 2.7 per cent stake in India's high quality HDFC Bank (for about US$270 million) gives us some insight in the dividend and provision management thoughts of DBS,' said Mr Wilson.

Some analysts said that maintaining the payout reflects management's confidence that earnings for the rest of the year will not be hit too badly by Singapore's worst downturn.

DBS last Friday reported that net profit was down 24 per cent at $456 million from a year ago but up 19 per cent from the previous quarter. The bank's strong performance far exceeded the $353 million mean estimate of seven analysts polled by Bloomberg.

Bank chairman Koh Boon Hwee said that the decision to maintain the quarterly dividend is a deliberate one.

Rival United Overseas Bank chairman Wee Cho Yaw last month said that the bank's decision to cut its 2008 dividend was to preserve capital as he remains pessimistic and sees the economy getting worse.

Royal Bank of Scotland analyst Trevor Kalcic said that maintaining the dividend 'sends a strong positive sign on DBS' outlook'. Mr Kalcic is bullish on DBS and said: 'Bears worry about asset quality and trading income, but we are unconcerned.'

DBS's Mr Sia said that the bank has taken steps since the last quarter to reduce the volatility of its trading income, by winding down its credit activity.

'Trading income will have some volatility, so we have done things to de-risk the trading and scale down the book,' he said.

DBS, being the largest bank in South-east Asia, has always done well in its interest rates and foreign exchange trading.