DBS Group - Phillip Securities 2021-08-06: Emerging Stronger

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

DBS Group - Emerging Stronger

  • DBS (SGX:D05)'s 2Q21 earnings 10.7% above our 2Q21e forecast. The outperformance came from net fee income and S$85mn reversal in GPs.
  • Asset quality stable, resulting in further GP write-backs of S$85mn. Management lowered full-year total allowances to under S$0.5bn (1H21 allowances at S$89mn). FY21 credit cost likely to be under 20bps.
  • Broad based loan growth of 3% in 2Q21 and 6% in 1H21. NIMs retreated 4bps q-o-q to 145bps. Full year guidance now at lower-end of guidance.
  • Maintain ACCUMULATE on DBS with higher GGM target price of S$32.00, from S$31.40. We raise FY21e earnings forecast of DBS by 6.7% as we lower our allowances. We now assume 1.39x FY21e P/BV in our GGM valuation, up from 1.36x, as we raise ROE modestly to 10.6%. Catalysts expected from declaration of special dividend.



The Positives


2Q21 earnings exceeded forecast.

  • All fees rose by double digits from a year ago. Wealth management fees rose 31.5% as investment-product sales were boosted by an improving economy amid low interest rates.

Asset quality stable, resulting in further GP write-backs of S$85mn.

  • Repayment by weaker exposures and credit upgrades allowed DBS to write back GPs during the quarter. The bank also made SPs of S$164mn, for the automotive and building and construction sectors. It lowered full-year allowances to under S$0.5bn (1H21: S$89mn) with credit cost likely to be under 20bps.
  • We believe full-year allowances will come under this guidance because of DBS’s asset quality. In light of its recent GP write-back, we cut total provisions for FY21e to S$309mn from S$772mn.

Broad-based loan growth of 3% in 2Q21, 6% in 1H21.

  • DBS's loan growth was led by trade and non-trade corporate loans. Housing and wealth management loan growth was sustained at the previous quarter’s levels.


The Negative


NIMs declined 4bps q-o-q to 145bps; full-year guidance now at lower end of range.

  • Increased deployment of surplus deposits at lower yields dragged NIMs down as deposits grew 1% q-o-q. NII retreated 1% q-o-q to S$2.1bn as lower NIMs offset higher loan and deposit volumes. Management now expects FY21 NIMs to fall at the lower end of its guided range of 145-150bps.


Outlook


Business momentum strong

  • Despite economic uncertainties from Singapore’s return to Phase 2 (Heightened Alert), loans and transaction pipelines are expected to be strong. We lower allowance estimates for FY21e. Consequently, our earnings forecast for DBS in FY21e rise by 6.7%.

New initiatives expected to power growth

  • DBS is accelerating new initiatives as it faces interest-rate headwinds. New initiatives such as the DBS Digital Exchange, Partior, Climate Impact X and China Securities joint venture are expected to bring in revenue of S$350mn in FY22e, up from S$150mn in FY21e.

GP reserves sufficient

  • With its capital position and liquidity – CET-1 ratio of 17.5% in 2Q21 vs 16.6% last year – well above regulatory requirements and high allowance reserves, we believe the bank has sufficient provisions to ride out current economic uncertainties. DBS's 2Q21 dividend is S$0.33, back to pre-pandemic levels. We do not rule out special dividends.


Investment Action

Maintain ACCUMULATE on DBS with higher target price of S$32.00, up from S$31.40






Terence Chua Phillip Securities Research | https://www.stocksbnb.com/ 2021-08-06
SGX Stock Analyst Report ACCUMULATE MAINTAIN ACCUMULATE 32.00 UP 31.400



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