DBS Group - Phillip Securities 2021-02-15: Tenacity From Diversity


DBS Group - Tenacity From Diversity

  • DBS (SGX:D05)'s FY20 earnings in line as lower credit costs compensated for weaker-than-expected income.
  • NIM fell 27bps to 1.62% y-o-y but loan growth of 4% y-o-y cushioned NII. NIM further contracted 4bps to 1.49% q-o-q.
  • Fees and commissions grew 1% y-o-y, recovering to pre-COVID levels.
  • Allowances matched 3Q20 levels despite the consolidation of troubled Lakshmi Vilas Bank (LVB).
  • We increase DBS's FY21 earnings forecast by 6% for lower allowances following a better credit outlook.

The Positives

Fees and commissions back to pre-COVID levels

  • DBS's fees and commissions grew 1% y-o-y in 4Q20 from S$741mn to S$747mn. WM fees grew 21% y-o-y to offset weakness in investment-banking and credit-card fees.
  • We forecast 12% growth in fees and commissions for FY21e as economic conditions improve. Investment-banking and credit-card fees are expected to recover to pre-COVID levels while WM fees should continue to power ahead.

FY20 allowances at lower end of 2-year guidance

  • DBS's 4Q20 allowances of S$577mn ticked up 4% q-o-q. They included S$183mn of GP from its consolidation of LVB.
  • FY20 allowances totalled above S$3bn. But this was at the lower end of the S$3-5bn guided by the bank for FY20-21. GP reserves hit S$4.31bn, in excess of MAS’ requirement by 42%.
  • We think that FY20 provisions will be sufficient for asset-quality deterioration in FY21 and expect credit costs to normalise to pre-COVID levels along with the economic recovery.

The Negative

NIM down by 4bps q-o-q to 1.49%

  • NIM further tightened in 4Q20, contributing to a 2% decline NII q-o-q. FY20 NII fell 6% on a 27bp y-o-y drop in NIM. The impact on NII was muted by 4% loan growth y-o-y in FY20.
  • DBS guided for NIM of 1.45-1.50% for FY21e as interest rates stabilise. Nevertheless, a cheap funding environment should allow it to continue with its low-yield lending, including interbank loans, to boost NII.


Clarity on loan moratorium

  • Loans under moratorium fell significantly to S$4.5bn, to roughly 1.2% of DBS’ loan book, as Singapore exited the first phase of its loan moratorium. Low delinquencies from the loans that exited moratorium support a lower credit-cost forecast of S$1bn for FY21e. This implies FY20-21 allowances of S$4bn, midway of the S$3-5bn range guided by the bank.

Pipeline for growth

  • DBS’s LVB consolidation will expand the bank’s footprint in India. Earlier operating concerns have waned after DBS took decisive action to provide for NPAs.
  • DBS’s securities JV in China and digital-exchange partnership with SGX are also expected to augment its business from FY21.

Investment Action

Upgrade DBS to ACCUMULATE with higher target price of S$29.50, up from S$22.60

Tay Wee Kuang Phillip Securities Research | https://www.stocksbnb.com/ 2021-02-15
SGX Stock Analyst Report ACCUMULATE UPGRADE NEUTRAL 29.50 UP 22.600