DBS posted 2Q09 net earnings of S$552m, down 15% YoY or +27% QoQ, and above the median estimate in a Bloomberg survey of S$425m.As expected, impairment charges remained high. This surged from $90m in 2Q08 to $437m in 1Q09 and $466m by 2Q09 (OCBC of S$104m and UOB of S$465m for 2Q09).

Net Interest Margin (NIM) was better QoQ, but down YoY. It improved from 1.99% in 1Q09 to 2.01% in 2Q09.The group declared a dividend of 14 cents for this quarter.While economic outlook is still uncertain, prospects are improving and to reflect this, we are expecting lower impairment charges for 2H09, and raising FY09 earnings from S$1572m to S$2128m.

We are also raising our valuation peg from 1.2x to 1.4x book, increasing our fair value estimate from S$12.40 to S$14.65.Maintain BUY. Annual yield is decent at 4.4% based no quarterly payout of 14 cents.