DBS Group - RHB Invest 2021-05-03: More Upbeat On Loan Growth, Asset Quality; BUY


DBS Group - More Upbeat On Loan Growth, Asset Quality; BUY

  • DBS delivered robust 1Q21 earnings on record fee income and lower provisions. The strong and broad-based business momentum has led to more optimistic guidance on loan growth and provisions. Based on our revised earnings, ROE is projected to recover to pre-pandemic levels in FY22F.
  • We believe DBS remains a good proxy to Singapore’s economic recovery. Maintain BUY, with new S$34.00 target price from S$33.00, 14% upside and ~3% yield.
  • Downside risk to our investment view would come from acquisitions that could overstretch management resources.

DBS's 1Q21 earnings – strong beat.

  • DBS (SGX:D05)'s 1Q21 net profit of S$2.0bn (+99% q-o-q; +72% y-o-y) was 32% and 34% of our and Street FY21F earnings. Reported ROAE rebounded strongly to 15.4% (FY20: 9.1%).
  • An interim dividend of 18 cents/share was recommended, for which the scrip dividend scheme will apply.
  • Key standouts in DBS's 1Q21 results were the 15% y-o-y jump in net fee income, higher treasury income (markets and customer flows), very well controlled expenses and solid asset quality that led to a write-back of S$190m in general provisions. NII, however, dipped 1% q-o-q as the shorter number of working days offset loan growth of 5% y-o-y and stable NIM.

Loan growth target raised.

  • With prospects of major economies looking increasing better, management believes the broad-based pick-up in demand for credit would be sustained. Based on DBS’s pipeline, management expects loan growth to be a stronger high single-digit vs earlier guidance for mid-single-digit growth. NIM guidance is maintained at 1.45-1.50%.

Provision guidance lower.

  • Equally encouraging is the outlook on asset quality. Delinquencies are lower than expected despite the tapering of loan moratorium. New NPL formation and specific allowance have also improved to pre-COVID-19 levels. With the post-moratorium repayments coming through, this led to lower provisions required under the expected credit loss (ECL) model.
  • General provisions (GP), which surged 72% or S$1.80bn in FY20, remains above the minimum regulatory requirement by S$1.0bn. As a result, DBS's management revised its FY21F provision guidance to > S$1.0bn.

Other guidance.

  • Annualised 1Q21 net fee income point to a 25% y-o-y increase. DBS's management maintained its guidance for double-digit growth for FY21F. We have factored in a more conservative 17% y-o-y growth.
  • Management provided more colour on opex, guiding for a 3-4% increase from FY19 level.

Other highlights.

  • DBS's FY21F dividend payout will be based on advice from the Monetary Authority of Singapore, which has yet to issue any new guideline.
  • DBS is open to looking at assets that can enhance its franchise, including Citibank’s retail business that is up for sale. That said, management stressed that DBS will be very disciplined and avoid any bidding frenzy. Pieces of Citi’s business that would be of interest are CitiGold and its credit cards unit.

DBS - earnings forecast and target price.

Singapore Research RHB Securities Research | https://www.rhbinvest.com.sg/ 2021-05-03
SGX Stock Analyst Report BUY MAINTAIN BUY 34.000 UP 30.000