DBS GROUP HOLDINGS LTD (SGX:D05)
DBS Group - Lower Provisions Drove Earnings
- DBS (SGX:D05)'s FY21 earnings of S$6.8bn met our estimates as higher fee income and strong loans growth offset lower NIMs. 4Q21 dividend per share rose 9% to S$0.36.
- NIM fell 6bps y-o-y to 1.43% but loan growth of 9% y-o-y cushioned NII. NIM remained flat q-o-q. Specific provisions down 1% to 67mil in 4Q21.
- Maintain ACCUMULATE with a higher GGM target price of S$41.60, up from S$35.90.
The Positives
Fee income grew 9% y-o-y.
- DBS's fee income growth y-o-y was broad-based and was led by wealth management and transaction services. However, fee income fell 8% q-o-q despite higher card and investment activities which were offset by seasonally lower WM fee income. Full-year fee income grew by 15% y-o-y to a record S$3.52bn as economic and market conditions improved.
Asset quality stable, FY21 total allowances at S$52mil.
- 4Q21 total allowances were significantly lower y-o-y but higher q-o-q due to a lower write-back in general provisions (GP). Specific provisions (SP) fell 82% y-o-y to S$67mil (6bps) but remained relatively unchanged q-o-q. Full-year allowances fell 98% y-o-y to S$52mil due to repayments of weaker exposure, credit upgrades and transfers to non-performing assets resulting in general allowance write-backs during the year.
- Full-year credit cost of 12bps is below pre-pandemic levels.
- Management has guided similar allowances for FY22e.
Loan growth up 9% y-o-y in 4Q21.
- Loan growth was led by non-trade corporate loans with growth led by drawdowns in Singapore and Hong Kong. Housing and Wealth management loan growth was sustained at the previous quarter’s levels.
- Full-year loan growth of 9% was the highest in seven years as growth was recorded across the region and a range of industries.
- Management has guided FY22e loan growth of mid to single-digit or better.
The Negative
NII and NIMs remain relatively unchanged.
- DBS's net interest margin (NIM) remained flat q-o-q but declined 6bps y-o-y to 1.43% as a result of lower market interest rates as customer deposits grew 3% q-o-q to S$502bn. NII grew 2% q-o-q to S$2.1bn as higher loan and deposit volumes were moderated by stagnant NIMs.
- Management guided similar FY22e NIMs 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.
GP reserves sufficient:
- With its capital position and liquidity – CET-1 ratio of 14.4% in 4Q21 vs 13.9% in 4Q20 – well above regulatory requirements and high allowance reserves , we believe the bank has sufficient provisions to ride out current economic uncertainties.
- If we were to include the acquisition of Citigroup’ Taiwan consumer banking business and MAS’ operational risk penalty, the CET-1 ratio of 13.3% is still at the upper end of DBS’ target operating range.
- DBS's 4Q21 dividend is up 9% to S$0.36 per share, above pre-pandemic levels.
Upside from higher rates:
- DBS mentioned that a 1 bps rise in interest rates could raise NII by $18mil-20mil (or NII sensitivity of 2% for every 10bps). Assuming two rate hikes of 50bps this year, our FY22e NII can climb S$2bn (or 21%) resulting in an increase in our FY22e PATMI by 26%.
Benign provisioning cycle.
- DBS guided credit cost of 12 bps. This is below the pre-pandemic FY18/19 credit cost of 19/20bps. The lower credit cost is due to lower SPs and an improving environment.
Maintain ACCUMULATE with a higher target price of S$41.60, up from S$35.90.
- We raise FY22e earnings forecast for DBS by 2% as we raise NII estimates for FY22e. We now assume 1.79x FY22e P/BV in our GGM valuation, up from 1.56x, as we raise our ROE estimates to 13.0%.
- For FY22e, DBS management guided benign provisions, continued growth in loans and stable NIMs. We believe there is upside to NIM guidance. A 50bps move in interest can raise our earnings by 13%.
- See
Glenn Thum
Phillip Securities Research
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https://www.stocksbnb.com/
2022-02-17
SGX Stock
Analyst Report
41.60
UP
35.900