DBS Group - CGS-CIMB Research 2020-02-13: Dividends A Bright Spot


DBS Group - Dividends A Bright Spot

  • Read-throughs from DBS’s 4Q19 results imply potentially higher credit costs at OCBC (SGX:O39) and UOB (SGX:U11), depending on their consumer segment exposure We lower our GGM-based target price to reflect lowered growth assumptions and higher provisions, but its FY20-22F S$1.32 DPS should retain investor interest. Its 12.5-13.5% CET-1 caveat is not likely to hinder this.
  • Neutralisation of US-China trade tensions is a potential re-rating catalyst.
  • Downside risks are broad-based asset quality issues arising from a prolonged covid-2019 situation.

We expect 6bp NIM compression and 3% loan growth in FY20F

  • DBS Group (SGX:D05)’s NIM rose 4bp y-o-y to 1.89% in FY19, fairly decent considering the three cuts to the US Fed rate in 2H19. It expects NIM to compress c.7bp in FY20F as regional central banks cut rates further despite a stabilising Fed rate outlook.
  • We expect the bulk of y-o-y NIM compression to take place in 1H20F as declining funding costs catch up to falling yields. NIM upside could come from continued resilience in S$ and HK$ rates. We pencil in y-o-y -6bp and -7bp in NIMs for FY20-21F.
  • DBS keeps its mid-single-digit FY20F loan growth guidance on pipeline visibility; we are more conservative and expect 3% given the sequential revision to regional GDP due to the covid-2019 outbreak.

FY19 non-II growth was robust; momentum could taper in FY20F

  • FY19 non-II growth was robust (+16% y-o-y), offsetting weaker y-o-y NII growth from lower loan growth (FY19: 3.7%, FY18: 6.8%) and squeezing NIM. Wealth and treasury income should support earnings going forward, though income growth may falter to a low single-digit (FY19: +10% y-o-y).
  • Notably, trading income dipped to S$228m in 4Q19 (comparable to 4Q18’s S$229m due to weak market conditions) but this should normalise upwards in coming quarters.
  • Digital spend will continue as virtual banks come on stream – a consequence is a weaker CTI (FY19: 43%) though there is room to shave some costs.

DBS guides for 4-5bp credit cost impact from Covid-2019

  • About 90% of DBS’s S$20bn exposure to consumer consumption sectors directly impacted by the virus outbreak are loans to larger corporates which are more resilient to cash-flow shortfalls over the next 3-4 months. Remaining exposures should require only 4-5bp in incremental credit costs. A more severe situation could push this to 8-10bp, but previous macro overlays (14bp GP in 2Q-3Q19) may cushion the P&L hit.
  • Although principal repayments on eligible moratorium loans will be deferred, the ‘performing’ status of these loans will be retained i.e. no reclassification into stage 2/NPL.
  • See DBS Share Price; DBS Target Price; DBS Analyst Reports; DBS Dividend History; DBS Announcements; DBS Latest News.

Andrea CHOONG CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2020-02-13
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