Excerpts from UOBKayHian report
DBS Group Holdings Ltd (SGX: D05)
- DBS Group achieved 2Q24 net profit of S$2,789m (+6% yoy) with broad-based growth across net interest income (+5% yoy), fees & commissions (+27% yoy) and other non-interest income (+6% yoy).
- Management estimates that every 1bp cut in the US Fed Funds Rate will reduce net interest income by S$4m. The lower sensitivity is due to its lower CASA ratio of 50.5% and large portfolio of fixed-rate assets.
- Tan Su Shan takes over the helm as new CEO in Mar 25.
Maintain BUY. Target price: S$41.50
DBS Group Results
DBS Group Holdings (DBS) reported net profit of S$2,789m for 2Q24, up 6.1% yoy but down 5.5% qoq. The results were above our net profit forecast of S$2,688m. It included integration costs of S$19m for Citi Taiwan.
Continued growth in net interest income
NIM was stable at 2.14% in 2Q24 as 3M compounded SORA was relatively unchanged at 3.6%. Loans grew 3% yoy on a constant currency basis with consolidation of Citi Taiwan.
On a sequential basis, loans were flat with growth in trade loans and wealth management loans offset by a decline in non-trade corporate loans. Net interest income grew 4.7% yoy.
Strong growth from wealth management and cards
Fees & commissions grew 27% yoy in 2Q24. Wealth management fees grew 37% to S$518m, driven by a shift from deposits into investments and bancassurance.
Card fees increased 32% to S$313m from higher spending. The consolidation of Citi Taiwan benefited both wealth management and card
fees. AUM increased 24% yoy to S$396b.
Continued growth of treasury customer sales
Other non-interest income expanded 6% yoy to S$840m in 2Q24. Treasury customer income from consumer and institutional banking grew 23% yoy to S$564m.
Disciplined cost containment and cost efficiency
Operating expenses increased 12% yoy to S$2,172m in 2Q24, with Citi Taiwan accounting for 5ppt of the increase. Cost-to income ratio remains healthy at 39.6%.
Asset quality remained stable
NPLs decreased 2.8% qoq due to higher upgrades, settlements and recoveries. NPL ratio was unchanged at 1.1%. DBS made total provisions of S$148m in 2Q24 (1Q24: S$135m).
Maintained the same quantum of quarterly dividend
CET-1 CAR improved 0.1ppt qoq to 14.8% in 2Q24. The board maintained quarterly dividend at 54 S cents.
Leadership transition
The board has appointed Tan Su Shan, current Group Head of Institutional Banking, as Deputy CEO. She will succeed Piyush Gupta as CEO when he retires at the next AGM on 28 Mar 25.
She has more than 35 years of experience in consumer banking, wealth management and institutional banking and has joined DBS since 2010.
She has managed both the Consumer Banking/Wealth Management and Institutional Banking businesses, which account for 90% of DBS’ income.
She operationalises DBS’ digitalisation strategy across both businesses. She will become the first homegrown CEO groomed internally for succession.
Guidance for 2024
Management guided mid-single-digit growth for net interest income in 2024, supported by the full-year impact of Citi Taiwan’s consolidation (completion: Aug 23).
Management expects double-digit growth for fee income, driven by wealth management (boost from Citi Taiwan and net new money inflows) and cards (boost from Citi Taiwan and organic growth in spending).
Growth in total income was revised upward to high single-digit (previous: mid-single-digit). Cost-to-income ratio is expected at around 40% (previous: low 40%).
Specific provisions are estimated at 10-15bp (previous: 17-20bp). Net profit is expected to increase by mid to high single digits (previous: above 2023 level).
Valuation/Recommendation
Maintain BUY. Our target price of S$41.50 is based on 1.74x 2025F P/B, derived from the Gordon Growth Model (ROE: 15.7%, COE: 9.0%, Growth: 0.0%).
You can find the full report here and the company website here.
