Dah Sing Banking Group reports HK$813m net profit in 1H13

Find out what caused the beat.

According to Barclays, DSBG and DSF reported net profit of HK$813mn/HK$680mn, 15%/11% above our estimates and 7%/8% above Bloomberg consensus.

The beat was mainly due to: 1) strong margin expansion and loan growth resulting in a 14% h/h and 32% y/y rise in net interest income; and 2) a 22% h/h and 41% y/y rise in fee income, led by wealth management, fund sales and trade finance fees. Contribution from associate, Bank of Chongqing, accounts for 25% of DSBG’s PTP.

Here's more from Barclays:

Sharp margin improvement: Net interest margin rose sharply by 17bps h/h and 30bps y/y to 1.77% in 1H13, as funding costs improved post-QE3, loan yields held up and loans grew strongly, resulting in LDR rising to 78% (from 73%).

Dah Sing benefited from some return of pricing power in 1H13, especially in the local SME segment, as competition from large foreign banks was mainly in the multinational large corporate space. Looking at 2H13, we expect margin to stabilize, as funding costs will unlikely fall much lower as system liquidity tightens.

Loan growth strong across all key segments: Loan growth (+8.3% h/h) was strong across China, Hong Kong, Macau, corporate and retail. The fastest-growing segments, as expected, were trade finance +25% h/h and China loans +18% h/h.

Hong Kong loans also grew at a decent pace. with corporate loans rising 7.8% h/h and mortgages rising 5.6% h/h.

Mark to market losses on insurance business: DSF’s insurance business suffered from mark-to market losses of HK$359m, on its bond investments as yields rose in 2Q13, but was offset by strong performance of the bank.

Very mild uptick in NPLs in China and Hong Kong: NPL ratio rose to 0.40% from 0.35% FY12, a low base. China’s individually assessed NPL ratio rose slightly from 1.24% to 1.29%, while overdue loans ratio was flat h/h at 1.24%.

Hong Kong’s individually assessed loans and overdue ratio rose mildly to 0.21% and 0.19%, (from 0.16% and 0.17%). Credit cost was stable h/h at 15bps.

Slightly lower DSBG interim dividend payout ratio:DSBG declared an interim dividend of HK9c per share, resulting in the interim payout ratio falling to 14% (from 16.6% in 1H12). DSF declared a 31c per share and payout ratio was stable at 13.5%. Core Tier 1 ratio remains strong at 10% (10.4%).