DBS 2Q22 Earnings Preview - CGS-CIMB Research 2022-07-19: Normalising Credit Costs

DBS 2Q22 Earnings Preview - Normalising Credit Costs

  • As a sector, Singapore bank valuations have been weighed down by macroeconomic headwinds of persistent inflation, US Fed fund rate uncertainties, and recession risks. As such, we expect DBS (SGX:D05)’s 2Q22F earnings to be affected by softer wealth management income given the continued risk-off sentiment amid market volatility, lower investment gains as interest rates rise, and (upwards) normalisation of credit costs.
  • Nonetheless, we expect more significant NIM expansion to offset some of the weakness. Other fee income lines such as credit cards should hold up well as travel spending rebounds. Steady trading income from stronger customer flows could help as well, in our view.
  • We expect DBS to record net profit of ~S$1.73bn for 2Q22F (-4% q-o-q, +1% y-o-y).
    • We expect ~1.5% loan growth in 2Q22F, mainly driven by corporate demand.
    • On NIM, we project a larger ~10bp q-o-q expansion to 1.56% in 2Q22F (1Q22: +3bp q-o-q) and anticipate the rise to be more pronounced in 3Q22F given the lagged pass-through of the 50bp/75bp Fed rate hikes in May/Jun 22, which may cushion the risks of higher impairments to come, if any.
  • We expect management’s guidance on economic growth (on whether a contraction is likely) and correspondingly on asset quality in 2H22F to be a key focus in DBS's 2Q22 results briefing.
  • An analysis factoring in Fed rate hike expectations (Bloomberg consensus forecasts) would result in FY22F/23F NIMs of ~1.7%/2.1% (our current expectation: 1.6%/1.9%). Incorporating credit cost of 15bp in FY22F/23F (our current forecast: 2bp/10bp) would still raise our FY22F/23F EPS forecast for DBS by ~2%/14%.
  • Given these factors, we project that DBS’s y-o-y net profit growth would come up to +33%/+14% in FY22F/23F – stronger than peers.
  • Reiterate ADD call on DBS with S$40.20 GGM-based target price. DBS's share price trades at 1.3x FY22F P/BV.

Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.

Andrea CHOONG CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2022-07-19
SGX Stock Analyst Report ADD MAINTAIN ADD 40.20 UP 39.900

Read also CGS-CIMB's most recent report:
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