DBS GROUP HOLDINGS LTD (SGX:D05)
DBS Group - Resilient Franchise; Potentially Higher Dividends
- DBS (SGX:D05) delivered 3Q22 earnings ahead of MIBG/Street expectations. Strong NIMs were the primary driver and there is potential for further upgrades as central banks continue hiking interest rates to tame inflation.
- Given recessionary risks, asset quality is likely to deteriorate and credit costs are set to rise. However, DBS’s strong franchise, execution track record and balance sheet should still deliver ROEs above 15% in 2023E – an historical high. This should catalyse higher dividend going forward, we believe.
- We raise target price of DBS to S$42.69 from S$42.18. Maintain BUY.
NIM acceleration to continue
- DBS reported 3Q22 NIMs expanded +32bps q-o-q as central bank rate hikes filtered through. The Group’s overall funding costs remains favourable with CASA making up 60%. This has fallen q-o-q, but remains one of the lowest cost funding mixes amongst peers.
- Additionally, there is S$180bn of fixed rate assets due to re-price higher between 2023-25E. We raise our 2022-24E NIMs forecast for DBS by 10-25bps to reflect these.
- On the other hand, we have lowered 2023-24E loan growth by 1-2ppts as timing of North Asia recovery remains a question mark. Margin growth should more than offset this.
- Separately, DBS is guiding for fee income improvements in 2023E driven by wealth management and credit cards. While wealth is -24% y-o-y lower in 9M22, net new money inflows have doubled y-o-y. Stabilisation of macro outlook could drive an inflection in fees going forward, in our view.
Credit costs, NPLs need to be watched
- NPLs have retreated to 1.2% vs 1.5% a year ago with a strong uptick in recoveries and upgrades. Slower North Asia recovery and a heightening global recessionary outlook puts this trend at risk, in our view.
- We have raised 2023-24E NPL assumptions by 2-15% with expected vulnerabilities in SMEs, manufacturing as well as FIs. As a result, we expect overall credit costs to increase. 3Q22 saw an additional S$350m of management GP overlays.
- Our credit cost assumptions for 2022-24E is raised 2-13bps with 2024E reaching 40bps – just under half of 2020 COVID peak.
Strong franchise with dividend upside. BUY
- DBS’s strong franchise, large corporate driven book together with potential upside catalysts from higher NIMs and a recovery in fees puts it in a strong position amidst current uncertainty.
- DBS’s provisioning and CET1 levels are strong, and with the loan growth outlook slower, there is significant room to raise dividends in 4Q22, in our view.
- We have raised 2022-24E EPS forecast for DBS by 6-11% following 3Q22 adjustments. Our multi-stage DDM (COE 9.3%, 3% terminal) target price for DBS is raised to S$42.69 (from S$42.18).
- See
- At our target price, DBS would be at 1.9x 2023E P/BV, while ROEs (on average equity) is set to reach 15.2% - the highest in history. Maintain BUY recommendation on DBS.
Thilan Wickramasinghe
Maybank Research
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https://www.maybank-ke.com.sg/
2022-11-03
SGX Stock
Analyst Report
42.69
UP
42.180
