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.
- Uncertainties make it unlikely for DBS to revert to its 5-year historical average P/NBV of 1.19x in the near term.
- See DBS Share Price; DBS Target Price; DBS Analyst Reports; DBS Dividend History; DBS Announcements; DBS Latest News.
- Keep NEUTRAL, new GGM-derived SGD18.70 Target Price from SGD21.50, 3% downside, c.5% yield, based on 0.96x 2020F P/NBV.
Leng Seng Choon CFA
RHB Securities Research
|
https://www.rhbinvest.com.sg/
2020-04-30
SGX Stock
Analyst Report
18.70
DOWN
21.500
