DBS Group - CGS-CIMB Research 2022-12-06: Upside Likely Capped By Fed Rate Hike Pause

DBS Group - Upside Likely Capped By Fed Rate Hike Pause

DBS GROUP HOLDINGS LTD (SGX:D05) | SGinvestors.ioDBS GROUP HOLDINGS LTD (SGX:D05)
  • DBS (SGX:D05) reiterated a fairly optimistic FY23F outlook with expectations of double-digit fee income growth led by wealth management and credit cards, and NIMs to reach ~2.25% by mid-FY23F assuming Fed rates peak at ~4.75%, consequently leading to CTI below 40% and ROE > ~15% in FY23F (from forecasted ~13.5% in FY22F).
  • Although DBS is baking in tail risks of Asia slowing down, we believe softening inflation readings make a convincing case for the Fed to slow down its pace of rate hikes, thereby limiting Fed rates peaking above ~5% (and our forecasted ~32% y-o-y net profit growth) currently being priced in.
  • We note stiff deposit-taking competition among Singapore banks of late. Although DBS is a key beneficiary of rising rates given its robust funding profile (3Q22: 66% CASA ratio, ~91% of funding base comprises customer deposits), progressively higher funding costs should nonetheless affect the quantum of NIM.
  • Asset quality has not been highlighted as a concern. Conservatively, DBS expects ~20bp in specific provisions – in line with its longer-term run-rate. We estimate ~15bp credit costs in FY23F – a relatively low figure – as we factor in potential writebacks offsetting the specific provisions.
  • We make no changes to our earnings forecasts for DBS and expect NIMs to rise ~52bp y-o-y to 2.28% in FY23F, with margin expansion likely to peak in 4Q22F-1Q23F. We think there is limited scope for further earning upgrades to be driven by NIM expansion given our expectation of the Fed slowing down its pace of rate hikes towards a ~5% peak rate before taking a pause.
  • We believe that incremental margin expansion has been priced in at this stage, and downgrade DBS to HOLD from Add.
  • We cut our DDM-based target price for DBS to S$36.50 as we tone down our terminal growth assumption (from ~2.5% to 2%) and therefore sustainable ROE (to ~14.5% from 15%).
  • DBS's Share Price currently trades at 1.3x FY23F P/BV (vs. 1.6x P/BV at its peak over the FY15-18 rate hike cycle).




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 2022-12-06



Previous report by CGS-CIMB:
2022-11-04 DBS Group - The Repricing Goes On; Fairly Optimistic FY23 Outlook.

Price targets by 5 other brokers at DBS Target Prices.
Listing of research reports at DBS Analyst Reports.

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















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