DBS - UOB Kay Hian 2022-01-31: Bolt-On Acquisition To Enhance Scale In Greater China

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DBS GROUP HOLDINGS LTD (SGX:D05)

DBS - Bolt-On Acquisition To Enhance Scale In Greater China

• DBS (SGX:D05) has agreed to acquire Citi Consumer Taiwan via a transfer of assets and liabilities. It will pay Citigroup a premium of S$956m and also inject S$1.2b into DBS Taiwan to support incremental risk-weighted assets. Based on the total cost of S$2.2b, DBS paid P/E of 9x for Citi Consumer Taiwan based on pre-pandemic earnings.
• Citi Consumer Taiwan generated ROE of above 20% pre-pandemic in 2018 and 2019 and has a high CASA ratio of 70%.

DBS is scaling up in Taiwan.

• DBS has agreed to acquire the consumer banking business of Citigroup in Taiwan (Citi Consumer Taiwan) via a transfer of assets (loans of S$11.3b) and liabilities (deposits of S$15.1b). Given that Citi Consumer Taiwan’s net assets are negative (deposits exceed loans by S$3.8b), Citigroup will transfer cash of S$3.8b to DBS. DBS will pay Citigroup a premium of S$956m (NT19.8b) and also inject S$1.2b (NTD24.5b) into DBS Taiwan to support incremental risk-weighted assets and future capital needs. Based on the total cost of S$2.2b (S$1.2b + S$956m), DBS paid P/E of 9x for Citi Consumer Taiwan based on pre-pandemic earnings.
• Becoming the largest foreign bank in Taiwan. Citi Consumer Taiwan has 2.7m credit cards and unsecured accounts, 0.5m deposit and wealth customers and 45 branches. It has an earning asset base of S$20.3b, comprising loans of S$11.3b and investment AUM of S$9b. It has total deposits of S$15.1b, of which more than 70% are sticky low-cost deposits (high current and savings accounts (CASA) ratio of 70%), as of Sep 21. It generated annual net profit of S$250m on average and ROE of above 20% pre-pandemic in 2018 and 2019.

Enlarge scale with acquisition of high-quality consumer franchise.

• The acquisition will expand DBS Taiwan’s credit full integration of Citi Consumer Taiwan is anticipated in the middle of 2023.

Maintain BUY call on DBS

• We have factored in contributions from Citi Consumer Taiwan starting from 1Q23. The impact on DBS’s based on 1.66x 2023F P/B, derived from Gordon Growth Model (ROE: 12.3%, COE: 8.0%, growth: 1.5%).
• See
  • DBS's Share Price,
  • DBS's Target Price,
  • DBS's Analyst Reports,
  • DBS's Dividend History,
  • DBS's Announcements,
  • DBS's Latest News.
• Catalysts:
  • DBS to benefit from NIM expansion in 2H22 and 2023 due to higher interest rates.
  • We expect DBS to reward shareholders by paying dividends at 35 cents per quarter in 2022 and 38 cents per quarter in 2023.

Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-01-31

SGX Stock Analyst Report BUY MAINTAIN BUY 40.280 SAME 40.280