Company Reports

We increased our fair value estimate for Singapore’s DBS Group Holdings to SGD 44 from SGD 43 following its second-quarter results, as we have revised our forecast for net fee income growth this year to 15%, up from our previous estimate of 6%. Net fee income increased by 27% year on year in the quarter, driven by a 37% rise in wealth management fees (25% excluding the Taiwan business acquired from Citi) and a 32% increase in credit card fees (up 9% excluding Citi). The strength in fee income growth from the first quarter, when net fees rose by 22%, not only continued but also accelerated in the second quarter.

DBS Group is the largest bank in Singapore and operates in Hong Kong, Greater China, Southeast Asia, and India. Besides being Singapore's largest bank, it has also delivered the highest average return on equity in recent years and we view the group as a top-class operator among Asian banks.

DBS’ first-quarter 2024 performance, like HSBC's, is at the high end of our estimate, with net interest margin and wealth management activities beating expectations. DBS management indicates that with higher interest rates for longer, total income may come in around 1%-2% over the midpoint of their current guidance. We nudge our NIM estimates higher by 2 and 4 basis points for 2024 and 2025, leading to marginally higher earnings estimates of around 1%. This mainly reflects that interest rates will stay higher for longer, with our view that US interest rates will be cut in the second half of 2024 instead of our original first-half forecast.

DBS Group is the largest bank in Singapore and operates in Hong Kong, Greater China, Southeast Asia, and India. Besides being Singapore's largest bank, it has also delivered the highest average return on equity in recent years and we view the group as a top-class operator among Asian banks.

Narrow-moat DBS' full-year 2023 results were largely in line with expectations, and with minimal surprises, market reaction should focus on guidance that is more upbeat than we had originally factored in for 2024. The bank's move to give a 1-for-10 bonus issue in lieu of a higher special dividend may disappoint some, but overall, it doesn't change our projection for the dividend payout to rise. We raise our fair value estimate to SGD 44 from SGD 41, which is driven mainly by a higher net interest margin, or NIM, and stronger near-term noninterest income growth assumptions. We're looking at return on equity to be 16.6% and 15.6% in 2024 and 2025, respectively, and averaging 15% thereafter. This factors in our expectations for interest rates to start declining in second-half 2024 and to normalize over the next few years. DBS remains our preferred Singapore bank and one of our favored bank picks in Asia.

DBS Group is the largest bank in Singapore and operates in Hong Kong, Greater China, Southeast Asia, and India. Besides being Singapore's largest bank, it has also delivered the highest average return on equity in recent years and we view the group as a top-class operator among Asian banks.

DBS Group is the largest bank in Singapore and operates in Hong Kong, Greater China, Southeast Asia, and India. Besides being Singapore's largest bank, it has also delivered the highest average return on equity in recent years and we view the group as a top-class operator among Asian banks.

We keep our fair value estimate of SGD 41 for DBS Group, equivalent to 1.8 times 2023 projected book value and 22% above the current share price.

We keep our fair value estimate of SGD 41 for DBS Group, equivalent to 1.8 times 2023 projected book value and 21% above the current share price.

DBS Group is the largest bank in Singapore and operates in Hong Kong, Greater China, and Southeast Asia. Over the past decade, the bank has expanded its reach through acquisitions, but we expect organic growth to be the main contributor to future earnings. Key areas of focus for the bank include small to midsize enterprises, transactional banking, and wealth management, which are all expected to benefit from the increase in trade and rising middle class in the Asian region. DBS has also launched digital banks in India and Indonesia.

We keep our fair value estimate of SGD 41 for DBS Group, equivalent to 1.84 times 2023 projected book value and 25% above the current share price.

DBS Group is the largest bank in Singapore and operates in Hong Kong, Greater China, and Southeast Asia. Over the past decade, the bank has expanded its reach through acquisitions, but we expect organic growth to be the main contributor to future earnings. Key areas of focus for the bank include small to midsize enterprises, transactional banking, and wealth management, which are all expected to benefit from the increase in trade and rising middle class in the Asian region. DBS has also launched digital banks in India and Indonesia.

Shares of Asian banks in our coverage declined again Thursday morning after Credit Suisse’s 24% drop overnight to below CHF 1.70 per share reignited concerns about global financial stability that emerged last week with the failure of Silicon Valley Bank. In terms of systemic risk, we see very low risk of bank runs occurring anywhere in Asia given policy support from each government and the absence of problematic large institutions like Credit Suisse which could become vectors of contagion. Japanese banks are the most susceptible in Asia, in our view, to worries over financial stability in the United States or Europe due to their greater linkages with these regions. Next in terms of vulnerability, in our view, is the Korean banking system, which depends on having access to U.S. dollar liquidity. However, we think the U.S. Federal Reserve, or the Fed, can be relied upon to set up a currency swap arrangement with the Bank of Korea again if needed to ensure stability. The Fed has a continuous unlimited swap agreement with the Bank of Japan.

DBS Group is the largest bank in Singapore and operates in Hong Kong, Greater China, and Southeast Asia. Over the past decade, the bank has expanded its reach through acquisitions, but we expect organic growth to be the main contributor to future earnings. Key areas of focus for the bank include small to midsize enterprises, transactional banking, and wealth management, which are all expected to benefit from the increase in trade and rising middle class in the Asian region. DBS has also launched digital banks in India and Indonesia.

We keep our fair value estimate of SGD 41 for DBS Group, equivalent to around 1.8 times 2023 projected book value and 18% above the current share price. For 2023 we forecast bottom-line profit of SGD 10.9 billion, representing return on equity, or ROE, of 18.8%, as net interest margin, or NIM, climbs to 2.14% for the full year in line with DBS’ revised guidance. We forecast that NIM thereafter narrows by 12 basis points per year as interest rates shift to the next cutting cycle and that DBS’ ROE declines to 17.8% in 2024 and 16.8% in 2025. However, this is still well in excess of our assumed cost of equity for DBS of 9.5%, reflecting DBS’ narrow economic moat based on cost advantage and customer switching costs. As such, we think a price/book ratio approaching 2 times (DBS’ peak valuation 15 years ago) is justifiable. Our fair value only implies a 2023 price/earnings ratio of around 9.6 times based on our forecast, which is in line with DBS’ historical range.

DBS Group is Singapore's largest bank, with operations spanning Hong Kong, Greater China, and Southeast Asia. The bank expanded its reach through acquisitions over the past decade, but organic growth is the key earnings driver in future. We expect the bank to build on its existing infrastructure and increase products through its distribution channels. Small to midsize enterprises, transactional banking, and wealth management are key areas of focus. All are leveraged to an increase in trade in the Asian region and a rising middle class and income levels as regional economies thrive. The bank has also launched digital banks in India and Indonesia.

DBS Group’s third-quarter result was solid, with net interest margin and net interest income trending above our expectation. Net profit was up 32% against the same period last year to SGD 2.2 billion, with net interest margin increasing 32 basis points against last quarter to 1.90%, with year-to-September net interest margin at 1.65%. The bank expects net interest margin to reach 2.25% by mid-2023, assuming the U.S. federal-funds rate peaks at 4.75%. We edge our 2022 forecast higher to 1.73% from 1.72% for the full year, and 2023 forecast to 2.14%, from 2.06%, but normalize our long-term assumption to 2% by 2026—the last is unchanged from our previous forecast. The bank’s outlook for 2023 remains positive with double-digit fee income growth guidance, supported by wealth management and cards income. We note that the high growth is supported by the Citi Taiwan acquisition, which is expected to close in 2023. The bank reiterated that loan growth in 2023 would grow at a mid-single-digit rate and return on equity is expected to be above 15%. Our fair value estimate of SGD 41 is unchanged with the higher net interest margin assumptions for 2022 and 2023, offset by higher operating expenses in 2022 and 2023. We have also lifted our credit cost assumption for 2022.

DBS Group is Singapore's largest bank, with operations spanning Hong Kong, Greater China, and Southeast Asia. The bank expanded its reach through acquisitions over the past decade, but organic growth is the key earnings driver in future. We expect the bank to build on its existing infrastructure and increase products through its distribution channels. Small to midsize enterprises, transactional banking, and wealth management are key areas of focus. All are leveraged to an increase in trade in the Asian region and a rising middle class and income levels as regional economies thrive. The bank has also launched digital banks in India and Indonesia.

DBS Group wrapped up the Singapore banks’ second-quarter results with a strong showing. DBS’ June quarter net profit increased 7% year on year to SGD 1.82 billion, or 1% higher quarter on quarter. Our SGD 41 fair value estimate is unchanged, and DBS remains our preferred pick among the Singapore banks. With net interest income expected to increase further in 2023, net fee income to recover and Citi Taiwan acquisition to contribute, we forecast return on equity to improve to 16%. The bank noted higher profitability should see cost/income decline to sub-40%, even including additional investments. With the bank sitting on a high level of provisioning and rising profitability continuing to underpin increase in common equity Tier 1 ratio, the bank noted a capital management initiative may be likely at the end of the year. Its common equity Tier 1 ratio is 14.2%, but the bank expects a 70-basis-point impact from the Citi Taiwan acquisition. Still, the ratio would be at the high end of the bank’s target range of 12.5% to 13.5%. A capital management initiative should serve as a positive catalyst, in our view. Second-quarter dividend is SGD 0.36 per share, in line with the first quarter, and we continue to expect an increment in the fourth quarter, taking our full-year dividend forecast to SGD 1.47 per share.

DBS Group is Singapore's largest bank, with operations spanning Hong Kong, Greater China, and Southeast Asia. The bank expanded its reach through acquisitions over the past decade, but organic growth is the key earnings driver in future. We expect the bank to build on its existing infrastructure and increase products through its distribution channels. Small to midsize enterprises, transactional banking, and wealth management are key areas of focus. All are leveraged to an increase in trade in the Asian region and a rising middle class and income levels as regional economies thrive. The bank has also launched digital banks in India and Indonesia.