DBS GROUP HOLDINGS LTD (SGX:D05)
DBS Group - Higher Net Interest Margin Lift Profits
- DBS (SGX:D05)'s 3Q22 earnings of S$2.24bn in line with our estimates due to higher net interest income (NII) and net interest margins (NIM) slightly offset by lower fee income and higher allowances. 9M22 PATMI is 77% of our FY22e forecast. 3Q22 dividend up 9% y-o-y at 36 cents.
- NII surged 44% y-o-y to S$3bn on NIM expansion of 47bps to 1.90% and loan growth of 6% y-o-y. Fee income fell 13% y-o-y due to weaker market sentiment while other non-interest income increased 32% y-o-y. 3Q22 ROE increased 4.2% points y-o-y to 16.3%.
- Maintain BUY on DBS with an unchanged target price of S$41.60.
DBS 3Q22 – The Positives
NIM and NII surge.
- NII grew 44% y-o-y to S$3.02bn due to NIM increase of 47bps y-o-y to 1.90% (1Q22: +3bps, 2Q22: +12bps, 3Q22: +32bps) and continued loan growth of 6% y-o-y. Loan growth was driven by housing and non-trade corporate loans offset by lower trade loans as maturing exposures were not replaced due to unattractive pricing.
- DBS's Management has maintained NIM guidance of 1.75% for FY22e and targets to reach 2% by 4Q22.
Other non-interest income up 32% y-o-y.
- Other non-interest income was up 32% y-o-y and q-o-q mainly due to higher Treasury Markets non-interest income, treasury customer income and investment gains.
Asset quality stable; 3Q22 allowances at S$178mil.
- 3Q22 total allowances were higher y-o-y and q-o-q due to higher GPs of S$153mil for the quarter (write back of S$23mil in 2Q22). Nonetheless, credit costs improved by 4bps y-o-y to 2bps as SPs were lower y-o-y and q-o-q at S$25mil. GP reserves rose to S$3.9bn, with NPA reserves at 120% and unsecured NPA reserves at 216%. The NPL ratio declined to 1.2% (3Q21: 1.5%) as new NPA formation remained low and was more than offset by higher upgrades and repayments.
DBS 3Q22 – The Negatives
Fee income fell 13% y-o-y.
- The fee income decline y-o-y was mainly due to weaker market sentiment affecting wealth management and investment banking which more than offset increases in card and loan-related fees. WM fees fell 30% y-o-y to S$323mil as market conditions further weakened during the quarter. Investment banking fees fell by 38% y-o-y to S$25mil alongside a slowdown in capital market activities.
- Nonetheless, card fees improved 24% y-o-y to S$223mil as borders start to reopen and spending increased, while loan-related fees increased 15% to S$122mil.
CASA ratio declined y-o-y.
- The Current Account Savings Accounts (CASA) ratio fell 8.9% y-o-y to 60.3% mainly due to the high interest rate environment and a move towards fixed deposits (FD). Nonetheless, total customer deposits increased 9% y-o-y to S$533bn.
- DBS's management said that the drop in CASA was expected and that the increase in FDs was higher than the drop in CASA, hence a net increase in deposits.
DBS – Outlook
Business momentum is 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. Management said that stress tests of vulnerable sectors and countries reveal no imminent areas of concern.
General Provision 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. The CET-1 ratio dipped 0.4% q-o-q to 13.8% but is still at the upper end of DBS’s target operating range.
- DBS's 3Q22 dividend is raised 9% y-o-y to 36 cents.
Upside from higher rates:
- DBS's management said that it expects to end 2022 with an exit NIM of 2.0%. 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, the FY22e NII can climb S$2bn (or 21%) resulting in an increase in our FY22e PATMI by 26%.
Maintain BUY with unchanged target price of S$41.60.
- We maintain our BUY recommendation on DBS with an unchanged target price of S$41.60.
- We raise FY22e earnings forecast for DBS by 3% as we increase NII estimates for FY22e. We assume 1.77x FY22e P/BV and ROE estimate of 13.6% in our GGM valuation.
- We raised FY23e earnings forecast for DBS by 6% as we increase NII estimates for FY23e. Our ROE estimate for FY23e is raised from 14.7% to 14.9%. The COE is nudged up from a higher risk-free rate and lower equity-risk premium. A 50bps move in interest can raise earnings by 13%.
- See
Glenn Thum
Phillip Securities Research
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https://www.stocksbnb.com/
2022-11-04
SGX Stock
Analyst Report
41.600
SAME
41.600
