DBS trading income and loan provisions on thin ice?

The former grew in 1Q12 but won't be sustainable while the latter's position is growing riskier, says PhillipCapital.

Both trading income and loan provisions helped push DBS Group to a record quarterly performance, yet PhillipCapital recognizes their respective threat to dragging down the company's future earnings.

Here's more from PhillipCapital:

DBS has reported strong sustained earnings momentum. Increases in revenue were across all revenue streams both q-q and y-y, excluding the one time investment banking fees from the HPT IPO in 1Q11. We are positive on the NIMs and Fees and commission outlook, although we have our doubts on the sustainability of this quarter’s high trading income. We expect loan provisions to increase in future quarter as DBS grow loans from SMEs, which are typically of higher risk.

Investment Actions? Based on the strong and balanced earnings, we factor the increase in NIMs, Fees and commission and Non interest income momentum, but also factor in the higher risk lending leading to an increase in loan provisions. We increased our EPS forecast from S$1.37 to S$1.45 for FY2012, while maintaining our dividend payout ratio of 40%. Based on our unchanged P/B of 1.16X, we maintain our Accumulate rating, with a higher target price of S$14.90.