DBS - RHB Invest 2022-05-04: Bright NIM Prospects Moderated By Headwinds


DBS - Bright NIM Prospects Moderated By Headwinds

  • DBS (SGX:D05) got off to a good start in 1Q22, but its 2H22 outlook has turned somewhat hazy due to growing macroeconomic headwinds. Still, stress tests point to a limited impact on asset quality, while rising US rates will have a significant positive impact on NIM.
  • We trim our target price for DBS, on a higher risk premium and lower ESG score to 3.2 (from 3.3), as we recalibrated the assessment of risks and regulatory requirements associated with data and cybersecurity.
  • Maintain BUY, new target price of S$38.10 from S$42.70, 12% upside with ~4% FY22F yield.

DBS's 1Q22 results in line.

  • DBS's 1Q22 net profit of S$1.8bn (+29% q-o-q, -11% y-o-y) make up 23%/24% of our/Street FY22F earnings.
  • Reported ROE rose to 13.1% (FY: 12.5%) while CET-1 fell 40bps to 14%. An interim DPS of S$0.36 was declared. PPOP declined 7% y-o-y as net fee income dropped by 7% and other income fell by 16% from the high base in 1Q21. With opex rising 4% y-o-y, CIR was at a higher 43.9% (1Q21: 41.2%).
  • NII grew 4% y-o-y as the 8% y-o-y loan growth offset a 3bps decline in NIM. A net allowance charge of S$55m (1Q21: S$10m) led to the 10% y-o-y drop in bottomline.

DBS's FY22 guidance.

  • DBS's management believes the robust pipeline will lift loan growth to 3.5-4% year-to-date for 1H22, but headwinds from geopolitical conflict, inflation fears and China’s ongoing lockdown make forecasts for 2H22 difficult. Still, its loan growth target of 6-7% y-o-y (FY21: +9.9%) is unchanged for now.
  • Similarly, its fee income outlook from wealth management and investment banking has turned less certain. Offsets would come from cards and customer treasury flows. The bright spot remains tailwinds from hikes in the US Federal Funds Rate that will have a positive impact on NIM over two years.
  • DBS's management sees NIM at 1.58-1.6% in FY22F with the exit rate at 1.8% (FY21: 1.45%). With the CASA ratio at a high 75%, DBS has guided for a S$18-20m rise in NII for every 1bp hike in US rates.

Asset quality outlook.

  • Non-performing assets (NPA) rose 2% q-o-q but NPL ratio was stable at 1.3% and NPA coverage a comfortable 114% (4Q21: 116%). First-order impact from the Russia-Ukraine war is close to zero while stress tests on vulnerable segments suggest its loans portfolio should stay robust.
  • DBS's management believes its guidance for FY22 provisions of close to zero is still possible. FY22F specific provisions (SP) of 15-20bps (FY21: 12bps) would be matched by the release of general provisions (GP).

Capital comfortable.

  • Additional capital for operational risk following the digital disruption in Nov 2021 shaved 40bps off the CET-1 ratio in 1Q22. Still, management believes DBS’s capital position remains comfortable, as new regional ventures would not require much additional capital. This means sustainable growth in dividends.

Target price lowered for DBS

Singapore Research RHB Securities Research | https://www.rhbinvest.com.sg/ 2022-05-04
SGX Stock Analyst Report BUY MAINTAIN BUY 38.10 DOWN 42.70