DBS GROUP HOLDINGS LTD (SGX:D05)
DBS Group - 1Q21 Record Earnings Cross The S$2b Mark
- DBS’s 1Q21 results surpassed our expectations due to a strong 24% y-o-y growth in wealth management fees, 12% y-o-y growth in robust net trading income and investment gains, and write-back in general provisions of S$190m. Asset quality has stabilised. Management is upbeat on prospects for future growth in India (LVB) and China (SZRCB and securities JV).
- We expect DBS's dividend yield to improve from 3.6% in 2021 to 4.4% in 2022. Maintain BUY. Target price: S$35.45.
DBS' 1Q21 RESULTS
- DBS Group (SGX:D05) reported net profit of S$2,009m for 1Q21, up 72% y-o-y and 99% q-o-q. The results were vastly above our expectations of S$1,424m and consensus estimate of S$1,374m.
- Resurgence in loan growth. Loans expanded 4% q-o-q (constant currency: 3%) and 4.8% y-o-y in 1Q21. Trade loans expanded 6% q-o-q due to increased market demand and higher commodity prices. Non-trade corporate loans grew 2% q-o-q driven by a broad range of industries. NIM was stable at 1.49%.
- Fee income scaling new heights. Fees & commissions expanded 15% y-o-y and 28% q-o-q, driven by wealth management (24% y-o-y, 42% q-o-q) and transaction services (10% y-o-y, 12% q-o-q). Buoyant sentiment drove increased customer activities across a wide range of investment products and bancassurance fees also grew.
- Trading & other non-interest income grew 12% y-o-y and doubled q-o-q due to seasonal factors. Net trading income doubled y-o-y and q-o-q and reached a new high. Investment gains also increased q-o-q.
- Asset quality stabilised. Delinquencies for corporate and consumer segments remain low. New NPLs have fallen to S$271m in 1Q21, half the quarterly average in 2020. NPL ratio improved 0.1ppt q-o-q to 1.5%. DBS wrote-back general provisions of S$190m. Its general provisions reserve has exceeded MAS’ requirement by S$1.0b or 31%. Including specific provisions of S$200m, total provisions were only S$10m (credit costs: 1bp).
- CET-1 CAR improved 0.4ppt q-o-q to 14.3% due to methodology refinement for market risk. The board declared a dividend of 18 cents for 1Q21 (scrip dividend is applicable).
STOCK IMPACT
- DBS has upgraded its guidance for loan growth to mid-to-high single-digit for 2021. Management maintains its guidance of double-digit growth for fee income. It sees structural improvements in fee activities and treasury markets, such as its digital platform to distribute investment and treasury products, which will contribute to stronger growth. Management expect total provisions to be below S$1b in 2021 (previous: S$800m-1,000m).
- Lakshmi Vilas Bank (LVB). The integration of DBS Bank India and LVB is proceeding well. Current accounts and savings accounts have grown 14%, leading to a 40bp drop in cost of deposits. Gold loans grew 4%. Management is working on improving the customer journey and strengthening credit appraisal for MSME loans. Legacy NPLs were reduced from S$212m to S$186m (down 12%) due to recoveries. Additional specific provisions are covered by general provisions of S$183m taken in 4Q20. Management expects LVB to turn profitable in 12-24 months’ time, with estimated profits of S$20m-30m per year. DBS Bank India was recognised as “India's Best International Bank 2021” by Asiamoney.
- Shenzhen Rural Commercial Bank (SZRCB). DBS will be the single largest shareholder of SZRCB with board representation and a 13% stake, which will be accounted as an associate. The investment of RMB5.3b (S$1.1b) is valued at 2020 P/B of 1.01x. SZRCB has consistently generated high ROE of 17.6% during 2015-20. There is potential upside if SZRCB is listed in the future. There could be opportunities for DBS to increase its stake if SZRCB embarks on equity fund raising to support future growth. DBS could provide SZRCB’s corporate customers with access to international trade finance, foreign exchange and capital markets, including equity fund raising through IPOs. DBS could also leverage on SZRCB’s network to deepen its presence in the Greater Bay Area (GBA).
- Securities JV in China. DBS Securities (China) obtained approval in Sep 20 and was legally incorporated in Jan 21. On-site inspection by regulators was completed in Mar 21. Infrastructure and staffing (head count: 100) are already completed. Management expects a business licence to be awarded soon.
- More digital initiatives. DBS will set up a digital exchange leveraging on blockchain technology to provide fully integrated tokenisation, trading and custody ecosystem for digital assets, such as unlisted companies, bonds, private equity funds and cryptocurrencies. DBS, JP Morgan and Temasek will jointly develop the Partior wholesale payment platform based on digitised commercial bank money to enable instantaneous settlement of payments for various types of financial transactions.
DBS - EARNINGS REVISION
- We raised our DBS's net profit forecast for 2021 by 12.5% due to stronger loan growth of 8.4% (previous: 6.1%), stronger growth in fee income of 16.3% (previous: 8.4%) and lower credit costs of 21bp (previous: 31bp).
- Maintain BUY. Our target price of S$35.45 for DBS is based on 1.56x 2022F P/B, derived from Gordon Growth Model (ROE: 11.3%, COE: 7.75%, Growth: 1.5%).
- See
Jonathan KOH CFA
UOB Kay Hian Research
|
https://research.uobkayhian.com/
2021-05-03
SGX Stock
Analyst Report
35.45
UP
33.300
