Review

• DBS reported another set of encouraging results, with 1QFY24’s net profit climbing 15% YoY to S$2,956mn. The strong results were underpinned by higher operating income along with lower allowances. ROE rose to 19.4% from 18.6% a year ago. Despite that, DBS’s results came within our expectations, accounting for around 30% of our full-year forecast.

• A higher interim dividend of 54 cents per share (1QFY23: 38 cents per share) was declared.

• 1QFY24 total income rose to a new quarterly higher of S$5,557mn (+13% YoY), underpinned by a 7% and 23% YoY rise in the net interest income (NII) and other non-interest income (non-NII). By segment, the commercial book reported total income growth of 14% due to higher net interest margin (NIM), and stronger fees and treasury customer sales, cushioning the 9% decline in markets trading income due to higher funding costs. Fee income jumped 26% YoY to S$1,271mn, driven by higher Wealth Management fees, followed by loan related and healthier card fees.

• Group NIM was steadier QoQ and YoY, rising by 1-2 bps to 2.14%. Meanwhile, loan growth was also quite stable, rising 1% QoQ (in constantcurrency terms) as the 3% increase in non-trade corporate loans was muted by steadier trade and consumer loans.

• Elsewhere, total deposits broadened by 3.6% QoQ and 4.9% YoY. FDs expanded by 7.2% QoQ and 17.6% YoY. Meanwhile, CASA balances have also stabilised QoQ at around S$280bn, after declining from S$302bn a year ago. The CASA ratio stood at 46% in March 2024.

• 1QFY24 overhead expenses broadened by 10.5% YoY to S$2,079mn from S$1,882mn a year ago. The increase was underpinned by 1) higher staff expenses (+10% YoY) and 2) other expenses (+12% YoY). 1QFY24 cost-toincome (CTI) ratio improved to 37% from 44% in 4QFY23 and 38% a year ago due to positive JAWS.

• Total allowances eased YoY to S$135mn in 1QFY24 from S$161mn in 1QFY23, thanks to lower GP set aside amounting to S$22mn from S$99mn. Specific allowances, however, rose to S$113mn from S$62mn a year ago. 1QFY24 SP remained low at 10 bps. Meanwhile, total NPAs rose slightly to S$5,221mn in 1QFY24 vs S$5,056mn in 4QFY23 and S$4,951mn a year ago due to the higher formation of new NPAs. Despite that, the headline nonperforming loans (NPL) ratio was stable at 1.1%. Total allowance reserves softened QoQ to 125% (1QFY23: 127%).

• DBS’ Core Equity Tier 1 (CET1) ratio remained well above regulatory requirements at 14.7% (December 2023: 14.6%). Management noted that the balance sheet is solid, with ample capital, liquidity, and general allowance reserves. Elsewhere, DBS reported a Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) at 144% and 116%, respectively.Review

• DBS reported another set of encouraging results, with 1QFY24’s net profit climbing 15% YoY to S$2,956mn. The strong results were underpinned by higher operating income along with lower allowances. ROE rose to 19.4% from 18.6% a year ago. Despite that, DBS’s results came within our expectations, accounting for around 30% of our full-year forecast.

• A higher interim dividend of 54 cents per share (1QFY23: 38 cents per share) was declared.

• 1QFY24 total income rose to a new quarterly higher of S$5,557mn (+13% YoY), underpinned by a 7% and 23% YoY rise in the net interest income (NII) and other non-interest income (non-NII). By segment, the commercial book reported total income growth of 14% due to higher net interest margin (NIM), and stronger fees and treasury customer sales, cushioning the 9% decline in markets trading income due to higher funding costs. Fee income jumped 26% YoY to S$1,271mn, driven by higher Wealth Management fees, followed by loan related and healthier card fees.

• Group NIM was steadier QoQ and YoY, rising by 1-2 bps to 2.14%. Meanwhile, loan growth was also quite stable, rising 1% QoQ (in constantcurrency terms) as the 3% increase in non-trade corporate loans was muted by steadier trade and consumer loans.

• Elsewhere, total deposits broadened by 3.6% QoQ and 4.9% YoY. FDs expanded by 7.2% QoQ and 17.6% YoY. Meanwhile, CASA balances have also stabilised QoQ at around S$280bn, after declining from S$302bn a year ago. The CASA ratio stood at 46% in March 2024.

• 1QFY24 overhead expenses broadened by 10.5% YoY to S$2,079mn from S$1,882mn a year ago. The increase was underpinned by 1) higher staff expenses (+10% YoY) and 2) other expenses (+12% YoY). 1QFY24 cost-toincome (CTI) ratio improved to 37% from 44% in 4QFY23 and 38% a year ago due to positive JAWS.

• Total allowances eased YoY to S$135mn in 1QFY24 from S$161mn in 1QFY23, thanks to lower GP set aside amounting to S$22mn from S$99mn. Specific allowances, however, rose to S$113mn from S$62mn a year ago. 1QFY24 SP remained low at 10 bps. Meanwhile, total NPAs rose slightly to S$5,221mn in 1QFY24 vs S$5,056mn in 4QFY23 and S$4,951mn a year ago due to the higher formation of new NPAs. Despite that, the headline nonperforming loans (NPL) ratio was stable at 1.1%. Total allowance reserves softened QoQ to 125% (1QFY23: 127%).

• DBS’ Core Equity Tier 1 (CET1) ratio remained well above regulatory requirements at 14.7% (December 2023: 14.6%). Management noted that the balance sheet is solid, with ample capital, liquidity, and general allowance reserves. Elsewhere, DBS reported a Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) at 144% and 116%, respectively.

Impact

• No change to our earnings estimates.

Outlook

• Overall, DBS reported a remarkable 1QFY24 performance with total income and net profit reaching new highs, supported by loan growth which had outpaced recent quarters, a slight improvement in NIM, as well as an improvement in the net fee income, which exceeded S$1bn for the first time, due to growth in wealth management, card fees and the boost from Citi Taiwan consolidation. Meanwhile, expenses were well managed, resulting in positive JAWs. Asset quality remained resilient, with the NPL ratio unchanged at 1.1% and SP remaining low at 10bp of loans. The quarter concluded with a higher dividend of 54 cents.

• Looking ahead, management continues to remain cautious about the ongoing geopolitical risks, although macroeconomic conditions remain robust. Maintaining FY24 guidance, management expects net profit to improve YoY, underpinned by NII, which should modestly surpass 2023 levels and a mid-tohigh teens growth projected in commercial book non-NII due to an anticipated pickup in the momentum for wealth management and treasury customer sales. Taken together, total income growth could come in at 1-2% points above previous guidance of a mid-single-digit growth, while the costincome ratio is forecasted to remain in the low-40% range. Although stress has not been observed thus far, SP is expected to normalise to 17-20bp.

Valuation

• Rolling valuations forward to FY25, we adjust DBS’s TP at S$36.60. The TP is derived from an implied PBV of c. 1.63x, based on the Gordon Growth Model. However, given that the risk-reward potential has narrowed due to the recent rise in the share price, we lower our recommendation from buy to HOLD for DBS.

Source: TA Research - 3 May 2024