DBS Group - Phillip Securities 2020-11-09: Recovery Underway As Allowances Tapered Off

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

DBS Group - Recovery Underway As Allowances Tapered Off

  • DBS (SGX:D05)'s 3Q20 earnings of S$1,297mn brought 9M profit to S$3.7bn. At 79% of our FY21e estimate, results were in line with consensus as well, with allowances lower than expected.
  • NII fell 12% y-o-y as NIM was down 37bps to 1.53%. Weakness could sustain into 4Q20.
  • Fees and commissions were up 17% q-o-q on recovery in wealth-management and credit-card fees.
  • Maintained 18-cent quarterly dividend. Scrip dividend will also be available for 3Q20.
  • Maintain NEUTRAL on DBS with higher GGM Target Price of S$22.60, from S$21.00.





The Positives


Recovery in non-interest income

  • Fees and commissions were down 2% y-o-y from S$814mn to S$798mn but up 17% q-o-q as wealth-management and credit-card fees recovered. Wealth-management fees grew 25% q-o-q and 6% y-o-y, a strong recovery. Credit-card fees of S$160mn were up 22% q-o-q, though still down 20% y-o-y as consumer spending on big tickets such as travel remained subdued.
  • Trading income grew 11% y-o-y to S$608mn as the bank continued to realise profits on investment securities. q-o-q, it was down 18% from a high base. Altogether, non-interest income offset the weakness in NII.

Allowances tapering off

  • Allowances of S$554mn were 35% lower than the S$849mn recorded in 2Q20. They are expected to stabilise as the bank comes off front-loaded provisions of S$1.94bn in 1H20. This is expected to lift pressure on profits in subsequent quarters.


The Negatives


NII fell 12% y-o-y as NIM was compressed 37bps to 1.53%

  • DBS's NIM further tightened 9bps q-o-q from 1.62% to 1.53%, chipping NII by 6%. The low NIM was a result of low interest rates, loan contraction of 1% and an increase in deposits of 1%.


Outlook


Asia embarks on swift recovery

  • DBS expects a strong economic rebound in Asia in 2021 to support mid-single-digit loan growth in FY21. However, as Singapore loan growth remains tepid, we are hesitant to revise our loan-growth assumptions of 2-3%.
  • A strong fee-income recovery to pre-COVID level is expected to support its income recovery in 2021.

Investment Action






Tay Wee Kuang Phillip Securities Research | https://www.stocksbnb.com/ 2020-11-09
SGX Stock Analyst Report NEUTRAL DOWNGRADE ACCUMULATE 22.60 UP 21.000



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