DBS Group - Yielding results

Excerpts from Maybank report

DBS Group Holdings (SGX: D05)

DBS Group 2023 earnings were marginally ahead of MIBG/Street. Earnings growth has peaked. However, levers such as loan growth, fee income and large general provision overlays should allow the Group to keep earnings supported at current levels.
Its shift to deliver higher base dividends, bonus share issues and potential special dividend increases capital returns visibility and dividend yield certainty, amidst an environment where risk free rates are set to fall.

Lower TP to SGD37.66. Maintain BUY.

NII peaking, but total income has upside risks

4Q23 NII fell -2% QoQ, dragged by a -6bps fall in NIMs. Rising funding costs and potential policy rate cuts could drive NIMs to tighten further, in our view.

For every 1bps cuts, NII is set to fall by SGD9-10m, according to Management. While loans were flat YoY, we expect the pace to pick up to +3.4% YoY in 2024E supported by better growth prospects globally.

Separately, 4Q23 NoII was a bright spot, rising +20% YoY. Fee income (+28% YoY) made a comeback with wealth management and cards showing improvements.

Management claims momentum is improving so far in 2024. Lower rates could be a positive catalyst as wealth AUM gets deployed to higher fee products.

Overall, we have kept 2024-25E estimates largely unchanged until better clarity appears on macro momentum.

Asset quality well supported. Expect higher SP

New NPL formation came off -43% QoQ in 4Q23. Management claims there is limited sectoral stresses. Commercial real estate is still a risk. The Group’s exposure is ~21% of gross loans.

However, 60% is in Singapore where the subsector is resilient. HK is ~18% where exposure is to high end corporates and developers. The US and European exposure is 10%, which is mostly to network customers from Singapore.

With portfolio LTV of <50%, DBS has not had to take any valuations adjustments. We expect credit charges to rise to 17bps in 2024E (vs. 14bps) from higher specific provisions taking into account the higher interest rate environment.

Valuation/Recommendation

DBS 4Q23 dividends was above expectations with quarterly payments increased by SGD0.06. This implies a +13% YoY increase in 2024E dividend.

Taking into account the boost from the proposed 1-for-10 bonus issue, 2024E dividends should be 24% YoY higher. These moves are welcome and increases returns visibility and yield certainty.

Despite this, we estimate a 2024E CET1 of 14.3% – well above regulatory minimums. This gives further capital return opportunities, in our view, including special dividends going forward.

Following 2023 adjustments, our multi-stage DDM (COE 9.9%, 3% terminal) TP has been lowered to SGD37.66 from SGD37.81. Maintain BUY.