Simons Trading Research

Author: simonsg   |   Latest post: Wed, 18 May 2022, 11:34 AM


DBS Group - 1Q21 a Strong Beat; Better Macro Could Drive Strong Performance Longer

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  • DBS (SGX:D05)’s 1Q21 earnings strongly beat Street and MKE expectations. A significant fall in provisions helped, but operational rebounds were the key driver.
  • Improving economic activity in Singapore and recovery in North Asia should put DBS on track for strong delivery in 2021E, we believe.
  • Better than expected asset quality should also raise upside risks for reserve write backs going forward. Strong capital and accretive strategies for medium-to-long term growth increases higher dividend prospects.
  • We raise DBS's target price to S$33.71. Maintain BUY.

Strong Operating Indicators

  • DBS saw fee income growing 15% y-o-y largely driven by a 24% y-o-y expansion in wealth management. Supportive markets, low interest rates should continue to drive expansion here. Moreover, other fees such as transaction banking, IB, loan related fees should see upside as operating conditions improve from regional vaccine deployments.
  • NIMs were flat q-o-q. Moderating deposit growth and rising loan growth (2021E upgraded to +8% from +7%) should put a floor on NIMs at current levels, we believe.
  • DBS’s gearing towards North Asian recovery (30% of loans), improving business activity in Singapore (48% of loans) should provide the momentum for further PPOP growth going forward. We have raised 2021-2023E PPOP by 2-9% to reflect this.

Asset Quality Good, But Not Out of the Woods

  • DBS's management claims delinquencies are low even as loans move backs are possible.
  • However, resurging COVID regionally and sizable (S$2.8bn) of moratoriums in HK, as well as expiring government risk sharing loans in Singapore, still may keep tail risks high. We have lowered 2021-22E credit charges by 1-5bps.

Raising DBS's Target Price to S$33.71. Maintain BUY

  • The improved outlook has us raising DBS's 2021-23E earnings per share forecast by 2-13%. DBS is also pursuing growth through longer term mid-cycle dividend growth by 3-5%. Overall, our target price for DBS has been increased to S$33.71 (from S$29.64). With 15% upside, maintain BUY.
  • At our target price, DBS should trade at 1.47x P/B – 7% lower than 1.58x it reached during the O&M crisis recovery.

Source: Maybank Kim Eng Research - 30 Apr 2021

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