DBS Group - Phillip Securities 2022-05-05: Earnings In Line Despite Lower Fee Income


DBS Group - Earnings In Line Despite Lower Fee Income

  • DBS (SGX:D05)'s 1Q22 earnings of S$1.80bn in line with our estimates. 1Q22 PATMI is 24% of our FY22e forecast. 1Q22 DPS stable q-o-q at 36 cents.
  • NIM fell 3bps y-o-y to 1.46% but loan growth of 8% y-o-y cushioned NII. NIM grew 3bps q-o-q. Fee income grew 9% q-o-q but fell 7% y-o-y due to weaker market sentiment.
  • Maintain ACCUMULATE rating on DBS with unchanged target price of S$41.60. Our FY22e estimates remain unchanged. For FY22e, DBS's 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 earnings by 13%.

The Positives

Asset quality stable, 1Q22 allowances at S$55mil.

  • DBS's 1Q22 total allowances were higher y-o-y and q-o-q due to higher SPs of S$167mil for the quarter. Nonetheless, credit costs were maintained at 15bps which is in line with recent quarters when significant repayments were excluded.
  • The GP write-back of S$112mil for 1Q22 was from credit upgrades and transfers to NPA. GP reserves remained prudent at S$3.75bn, which were S$ 200mil above the MAS requirement and S$1bn above Tier-2 eligibility.
  • NPL ratio was maintained at 1.3%.

Loan growth up 8%, deposits up 9% y-o-y in 1Q22.

  • Loans grew 8% y-o-y and 2% q-o-q to S$416bn. This was mainly due to non-trade corporate loans growth led by drawdowns in Singapore and Hong Kong across a range of industries. Housing and WM loan growth was sustained at the previous quarter’s levels.
  • DBS's management has maintained its FY22e loan growth guidance of mid to single-digit or better. Deposits grew 9% y-o-y and 4% q-o-q to S$520bn, and current and savings accounts (CASA) accounted for 75% of customer deposits.

The Negative

NII and NIMs remain relatively unchanged.

  • NIM grew 3bps q-o-q but declined 3bps y-o-y to 1.46% as a result of lower market interest rates as customer deposits grew 4% q-o-q to S$520bn. NII grew 2% q-o-q and 4% y-o-y to S$2.2bn as higher loan and deposit volumes were moderated by stagnant NIMs.
  • DBS's management has increased its guidance for FY22e NIM to 158 -160bps.

Fee income fell 7% y-o-y.

  • Fee income decline y-o-y was mainly due to weaker market sentiment affecting wealth management and investment banking. WM fees fell 21% y-o-y to S$408mil with declines in investment product sales mitigated by higher bancassurance income. Investment banking fees fell by 12% y-o-y to S$43mil as fixed income activities fell.
  • Nonetheless, fee income grew 9% q-o-q mainly due to higher fees from loan-related activities, transaction banking and wealth management as it recovered from a seasonally lower 4Q21.


Business momentum strong:

  • Despite economic uncertainties from macroeconomic factors such as slower growth, higher inflation and supply chain disruptions, loans and transaction pipelines are expected to be strong. DBS's management said that stress tests of vulnerable sectors and countries reveal no imminent areas of concern.

GP reserves sufficient:

  • With its capital position and liquidity well above regulatory requirements and high allowance reserves, we believe the bank has sufficient provisions to ride out current economic uncertainties. While the CET-1 ratio fell by 0.4% q-o-q due to MAS’ operational risk penalty, the CET-1 ratio of 14% is still at the upper end of DBS’s target operating range.
  • DBS's 1Q22 dividend is maintained q-o-q at 36 cents, above pre-pandemic 33 cents.

Upside from higher rates:

  • DBS said that a 1 bps rise in interest rates could raise NII by $18mil- 20mil (or NII sensitivity of 2% for every 10bps). Assuming hikes of 100bps this year, our FY22e NII can climb S$2bn (or 21%) resulting in an increase in our FY22e PATMI by 26%.

Maintain ACCUMULATE with unchanged target price of S$41.60.

Glenn Thum Phillip Securities Research | https://www.stocksbnb.com/ 2022-05-05