DBS GROUP HOLDINGS LTD (SGX:D05)
DBS Group - Solid NIM Expansion
- DBS's 2Q22 net profit of S$1.8b increased 7% y-o-y driven by higher NII which helped to mitigate weaker non-interest income.
- 2Q22 NIM expanded 12 bps to 1.58% as the impact of higher rates started coming through, which should continue in the coming quarters.
- While asset quality trends remain stable and we continue to expect stronger NII in the quarters ahead, we are trimming our fair value for DBS to S$37.60 implying a lower multiple in line with our more cautious stance on the global financials sector amid higher macro risks ahead.
DBS's 2Q22 driven by better NII and NIM expansion which helped to mitigate weaker non-interest income.
- DBS (SGX:D05)'s 2Q22 net profit of S$1.8b increased 7% y-o-y, marking the second highest on record, with total income growth of 6% y-o-y. Profit before allowances of S$2.1b increased 4% y-o-y while allowances were 42% y-o-y lower from lower specific provisions (SP).
- 2Q22 NII grew a solid 17% boosted by an accelerated expansion in NIM of 12 basis points (bps) to 1.58%, which helped to more than offset the weaker non-interest income (-11% y-o-y) due to soft market conditions. Fee income fell 14% with lower wealth management, moderated by an ongoing recovery in the cards segment, while other non-interest income declined 15% y-o-y. Loans grew 1% in 2Q22, driven by Singapore and Hong Kong while housing and wealth management loans were stable on quarter and trade loans grew 8% amid higher commodity prices.
- Overall asset quality remained benign for DBS in 2Q22, with specific allowances coming in at a low of 8bps of loans (vs 15bps in 1Q22). Non performing loan (NPL) ratio was stable at 1.3%, unchanged from previous quarter. Common Equity Tier-1 (CET1) ratio increased from 16.5% in 1Q22 to 16.7% as of 30 June 2022. 2Q22 dividend per share of S$0.36 per share was in line with expectations.
- 1H22 net profit broadly in line - DBS's 1H22 net profit of S$3.62b declined 3% from a year ago, while total income of S$7.5b gained 1% y-o-y. NII grew 11% driven by NIM expansion of 5bps and loans growth of 7% from a year ago. Fee income was softer as expected, down 9% dragged by wealth management and investment banking. Other non-interest income fell 13% y-o-y. Allowances increased 13% y-o-y.
Our fair value for DBS is reduced to S$37.60.
- While asset quality trends remain stable and we continue to expect stronger NII in the quarters ahead, we are trimming our fair value estimate of DBS to S$37.60 implying ~1.6x price-to-book (P/B), which is aligned with our more cautious stance on the global financials sector amid higher macro risks ahead.
- In its results update, DBS provided a fairly constructive outlook which included a base case for inflation to be tempered and US rates to peak at 3.5- 4%, while also acknowledging higher tail risks such as systemic risks from China, stubborn inflation and consequently more aggressive rate hikes which could pressure growth.
- See
- Despite the higher macroeconomic uncertainties, DBS expects to benefit from the impact of accelerated interest rates flowing through (July 2022 NIM has reached above 1.8%) and highlighted ongoing stress tests are still indicating robust asset quality.
- For 2022, DBS's management maintained its mid single-digit loans growth guidance (lower end of its prior mid to high single-digit guidance), reiterated its NII sensitivity estimate of S$18-20m per bps of US rate increase (current base case is for US rate to peak at 3.75-4%) and is hopeful that fee income may have bottomed in 2Q22. Efforts ahead will include focus on improving its cost income ratio towards 40%.
OCBC Research Team
OCBC Investment Research
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https://www.iocbc.com/
2022-08-04
SGX Stock
Analyst Report
37.60
DOWN
40.000
