Review

• DBS reported strong results, with 1HFY24’s net profit climbing 9.5% YoY to S$5,759mn, underpinned by higher operating income. ROE was steady at 18.8% vs. 18.9% in 1HFY23. DBS’s results exceeded our expectations, accounting for around 58% of our full-year forecast.

• A higher interim dividend of 54 cents per share (2QFY23: 44 cents per share) was declared.

• 1HFY24 total income rose 11% YoY to a record high of S$11,039mn (+11% YoY), underpinned by a 6% 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 11% due to higher net interest margin (NIM) and stronger fees and treasury customer sales, cushioning the 3% decline in market trading income. Fee income jumped 25% YoY to S$2,535mn, driven by higher Wealth Management fees, followed by loan-related, stronger card fees and transaction services.

• Group NIM was steadier QoQ and YoY at 2.14%. Meanwhile, loan growth was also relatively stable, rising 1% YoY (in constant-currency terms), driven by trade and non-trade corporate loans. Meanwhile, QoQ loan growth was also stable as declines in demand for non-trade corporate loans muted the more robust demand for trade and wealth management loans.

• Elsewhere, total deposits broadened by 1.0% QoQ and 7.6% YoY. FDs expanded by 2.2% QoQ and 19.7% YoY, while CASA balances stabilised QoQ at around S$278bn after declining from S$292bn a year ago. The CASA ratio stood at 46% in June 2024.

• 1HFY24 overhead expenses broadened by 11.5% YoY to S$4,251mn from S$3,813mn a year ago. The increase was underpinned by 1) higher staff expenses (+12.3% YoY) % due to salary increments and higher bonus accruals, along with rising headcount from the addition of staff from Citi Taiwan, and 2) other expenses (+10.1% YoY). 1HFY24 cost-to-income (CTI) ratio stood at 39%, rising slightly from 38% in 1HFY23.

• Total allowances broadened YoY to S$283mn in 1HFY24 from S$233mn in 1HFY23 due to higher SP and GP of S$190mn and S$73mn, respectively. Specific allowances rose due to YoY declines in settlements and recoveries. Nevertheless, 1HFY24 SP remained low at 9 bps (1HFY23: 8 bps). Meanwhile, total NPAs rose slightly to S$5,077mn in 1HFY24 vs S$4,990mn in 1HFY23 due to the higher formation of new NPAs. Despite that, the headline nonperforming loans (NPL) ratio was stable at 1.1%. Total allowance reserves rose QoQ to 129% (1QFY24: 125%).

• DBS’ Core Equity Tier 1 (CET1) ratio remained well above regulatory requirements at 14.8% (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 148% and 116%, respectively.

Impact

• Realigning our forecasts to management’s guidance, we raised FY24/25/26 net profit to S$10,876/11,450/12,665mn from S$9,886/10,345/10,820mn, previously.

Outlook

• Overall, DBS reported a remarkable 1HFY24 performance, with the net profit reaching a new high and results beating estimates. Earnings were supported by stable loan growth and NIM, as well as an improvement in the net fee income, thanks to wealth management, card fees and the boost from Citi Taiwan consolidation. Meanwhile, expenses were well managed, resulting in a steady CTI. Asset quality remained resilient, with the NPL ratio unchanged at 1.1% and SP remaining below 10bps of loans. The quarter concluded with a higher YoY interim dividend of 54 cents.

• Looking ahead, management continues to remain cautious about the ongoing geopolitical risks and market volatility. Tweaking FY24 guidance, management expects net profit to improve by a YoY mid to higher single-digit growth, underpinned by better NII and 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 a high-single-digit (from mid-single-digit growth), while the cost-income ratio is forecasted to remain around 40%. Meanwhile, the SP is projected to be within a lower range of 10- 15 bps from 17-20 bps.

• Meanwhile, DBS Chief Executive Piyush Gupta announced his decision to resign on March 28, 2025. He will be succeeded by Ms. Tan Su Shan, who has been appointed as the deputy CEO. We believe Ms. Tan, currently serving as the Group Head of Institutional Banking, is expected to ensure continuity in the bank’s strategies, particularly in technology. DBS highlighted that Ms Tan has been instrumental in leading the day-to-day implementation of the bank’s digitalisation strategy across her areas of responsibility.

Valuation

• We adjust DBS’s TP to S$39.10 from S$36.60 on the back of the upward revision to our earnings. The TP is derived from an implied PBV of c. 1.4x, based on the Gordon Growth Model and 3% ESG premium. However, given that the risk-reward potential has widened due to the recent decline in the share price, we upgraded our recommendation from hold to BUY for DBS.

Source: TA Research - 8 Aug 2024