DBS Group - CGS-CIMB Research 2022-08-05: Waiting On A NIM Pick-Up

DBS Group - Waiting On A NIM Pick-Up

  • On its macro outlook, DBS Group (SGX:D05)’s base case pens in US Fed fund rates peaking at ~3.5- 4%, inflation tempering, and a mild recession. The bank expects the corresponding flow-through to Asia to be contained and does not anticipate a recession in this region. In this regard, DBS is seeing good loan growth momentum and is on track to achieving its mid-single-digit loan growth target for FY22F.
  • With opex staying well controlled in 1H22, DBS's management guides for CTI to fall towards ~40% by end-FY22F (1H22: ~44%) and below 40% in FY23F, as NII growth gains momentum. This will allow some capacity for additional investments in technology.
  • Further investments into new ventures in India are not likely for now as DBS focuses on integrating and beefing up Lakshmi Vilas Bank (amalgamated with DBS Bank India in Nov 20).
  • DBS recorded a more substantial ~12bp q-o-q NIM expansion in 2Q22. While the bank notes that the pass-through from Fed rates into NIMs had been quicker than expected given US$/S$ strength in 1H22, this pass-through rate could slow as S$ strengthens in 2H22F.
  • Factoring in our expectations of the Fed rate increasing to ~3.5% by end-2022F, followed by a slight cut to ~3.25% by end-2023F and ~3% by end- 2024F, we raise our FY22F/23F/24F NIM estimates to ~1.74%/2.22%/2.16% (FY21: 1.45%), implying stronger NIM expansion in 2H22F.
  • While we expect further earnings upside from NIM expansion to come, sequential fee growth in 2H22F would likely be soft, albeit improved vs.1H22 (we expect a ~7% y-o-y decline in FY22F), as sustained market volatility weighs on its wealth management, investment banking and treasury incomes.
  • DBS stress-tested its portfolio for oil prices reaching S$200 a barrel and a ~6-7% rate for SME loans, among others, and found that its asset quality remained solid. Management guides for credit costs to remain relatively benign at ~10-11bp in FY22F; its S$1.8bn management overlay buffer provides further comfort in the event of any asset quality deterioration.
  • DBS’s onshore Mainland China property exposure was ~S$2bn in 2Q22 (~0.5% of group loans), with the majority of these extended to SOEs (state owned enterprises).
  • Reiterate ADD rating on DBS with GGM-based target price of S$40.20. DBS's share price currently trades at 1.4x FY22F P/B.

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 2022-08-05
SGX Stock Analyst Report ADD MAINTAIN ADD 40.200 SAME 40.200

Previous report by CGS-CIMB:
2022-07-19 DBS 2Q22 Earnings Preview - Normalising Credit Costs

Target prices by 5 other brokers at DBS Target Prices.
Listing of broker reports at DBS Analyst Report.

Relevant links:
DBS Share Price History,
DBS Announcements,
DBS Dividends & Corp Actions,
DBS News Articles


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