DBS - RHB Invest 2020-04-30: Next Two Years ~ Expect Sharply Higher Allowances

DBS GROUP HOLDINGS LTD (SGX:D05) | SGinvestors.io DBS GROUP HOLDINGS LTD (SGX:D05)

DBS - Next Two Years ~ Expect Sharply Higher Allowances

  • We lower our sustainable ROE assumption to 9.4% from 11.2% vs 1Q20’s 9.2% on higher provisioning.
  • DBS' 1Q20 net profit released this morning accounted for 21% and 22% of our pre-results and consensus’ forecasts, and we cut our FY20F- 22F earnings.
  • Given the uncertainties, there are risks of provisioning being even higher than our revised forecasts.



DBS' 1Q20 net profit fell 29% y-o-y, and we expect weak future earnings.

  • DBS (SGX:D05)'s 1Q20 total income rose 13% y-o-y, driven mainly by other non-II’s 39% surge from gains in investment securities. DBS’ allowances jumped to SGD1.09bn (1Q19: SGD76m) – this was the main cause for the earnings fall.
  • For FY20, management guided for profit before allowances to be at c.FY19’s level. See DBS Announcements.
  • We cut FY20F-21F earnings by 14% each, mainly due to increased provisioning expectations.




NIMs to narrow in 2020.

  • DBS' 1Q20 NIM of 1.86% was 2bps narrower y-o-y, but flat q-o-q. NII rose 7% y-o-y. Management said the recent interest rate cut has not impacted 1Q20 NIM.
  • For FY20, we forecast NIM of 1.75% and loan growth of 2%.


DBS guided for credit costs to rise between SGD3bn and SGD5bn (80- 130bps) cumulatively over two years.

  • Small & medium enterprise loans are higher risk in the current circumstances, and accounts for 10% of DBS’ loans composition. However, these are predominantly secured against property.
  • We forecast overall FY20-21 provisions of SGD2.38bn and SGD1.78bn, which works out to a cumulative 114bps for this timeframe.


DBS identified eight industries that are more directly impacted by the slowdown.

  • These account for SGD46bn in loan from large corporates. Oil and gas accounts make up the largest share: SGD23bn, of which oil and gas traders account for SGD5bn in loans – 50% are backed by bank letters of credit. Aviation accounts for SGD6bn in loans, of which 35% are for national airlines backed by aircraft.


DBS declared a 1Q20 dividend of 33 cents/share

  • The scrip dividend scheme will not apply.
  • 1Q20 CET-1 of 13.9% is above the bank’s target operating range of 12.5-13.5%, which should help support future dividends.
  • Management said it will adjust the dividend policy, as the impact of COVID-19 unfolds. We forecast a FY20 dividend of SGD1.00/share, lower than FY19’s SGD1.23. See DBS Dividend History.


We have a target 2020F P/NBV of 0.96x.






Leng Seng Choon CFA RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-04-30
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 18.70 DOWN 21.500



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