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
- NEUTRAL on DBS with higher target price of S$22.60, up from S$21.00.
- See DBS Share Price; DBS Target Price; DBS Analyst Reports; DBS Dividend History; DBS Announcements; DBS Latest News.
- We hold our DBS's FY21e earnings estimate and peg our GGM valuation to a higher FY21e ROE of 11.4%. The higher ROE comes from improved income and lower allowances that are expected to increase profits by 16% in FY21e.
- For sector exposure, prefer UOB (SGX:U11) (Accumulate, Target Price: S$21.10). See report: United Overseas Bank - Phillip Securities 2020-11-09: Asset Quality Clarity To Mitigate Earnings Pressure.
Tay Wee Kuang
Phillip Securities Research
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https://www.stocksbnb.com/
2020-11-09
SGX Stock
Analyst Report
22.60
UP
21.000
