DBS - RHB Invest 2020-08-07: Provisions To Stay High As Non-Performing Loans Rise

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

DBS - Provisions To Stay High As Non-Performing Loans Rise

  • DBS’ 1H20 net profit accounts for 51% and 53% of our pre-results and consensus’ FY20F. Given the asset quality uncertainties ahead, there are risks of provisioning being even higher than our revised forecasts.
  • Keep NEUTRAL, new GGM-derived SGD18.50 Target Price from SGD18.70, 9% downside, offset by c.4% yield, based on 0.94x 2020F P/NBV, which is derived from our sustainable ROE assumption of 9.3% vs 1H20’s 9.5%.



DBS' 1H20 net profit fell 26% y-o-y, and we expect weak earnings ahead.

  • DBS (SGX:D05)'s 1H20 total income rose 7% y-o-y, driven mainly by other non-interest income. 1H20 NII was up 1% y-o-y, but weakness was evident in 2Q20, with NII down 7% q-o-q.
  • We cut our FY20F NII by 2%, due to lower NIM assumption. Consequently, FY20F net profit was lowered by 5%.




Sharp NIM compression.

  • DBS' 2Q20 NIM of 1.62% was 24bps narrower q-o-q. There were sharp cuts in interest rates globally, and DBS deployed excess deposits into lower-yielding assets. Management guided FY20 NIM to be 1.6%, and we forecast a close 1.63% (cut from 1.75%). We assume FY20 loan growth of 5%.


DBS guided for allowances of SGD3-5bn cumulatively over two years.

  • NPL ratio was 1.5%, slightly lower than 1Q20‘s 1.6%. DBS said there were not much NPL formation and specific provisions in 2Q20, other than for unsecured consumer credit. The relief measures – which include SGD12.6bn in corporate loans on principal-only moratoriums, and SGD5.7bn in consumer loans (mostly owner-occupied Singapore housing loans) – have helped.
  • We forecast cumulative 2-year provisions of SGD4.9bn, with the bulk incurred in FY20, on the back of rising NPL ratio to FY21F’s 2.6%.


Capital remains adequate.






Leng Seng Choon CFA RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-08-07
SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 18.50 DOWN 18.700



Advertisement



MOST TALKED ABOUT STOCKS / REITS OF THE WEEK



loading.......



ANALYSTS SAY


loading.......