• Stay BUY, new SGD38.90 TP from SGD34.80 (ex-bonus), 12% upside with c.6% FY24F yield. DBS’ 1Q24 results beat estimates on better-than- expected non-II, and loan impairments tracking below estimates. As a result, it is now more optimistic on operating income growth and guided for some PATMI growth in 2024 (vs flat earnings previously). We lift FY24-26F earnings by c.7% pa. We believe the dividend yield and yield compression investment thesis for DBS remains intact. There could be further upside to capital returns should capital-light, non-II continue to drive its bottomline.

• 1Q24 results a beat, with SGD3bn (+15% YoY, +30% QoQ) in earnings at 30% of our and consensus FY24F PATMI. ROE rose to a new high of 19.4% (FY23: 18%) while CET-1 was stable at 14.7% (FY23: 14.6%). As expected, an interim DPS of 54 cents (vs 1Q23: 38 cents, adjusted for bonus) was declared. 1Q PIOP rose 14% YoY, underpinned by a 23% YoY jump in fees while other non-II rose 24% YoY. Wealth management (WM), cards and loans-related fees were key fee income drivers while stronger treasury customer sales drove other non-II. Do note that the strong YoY growth also reflects the inclusion of Citi Taiwan (TW) (since 3Q23) and a non-recurring SGD100m FX hedging gain from its overseas books. NII was up 7% YoY on 2% loan growth and a 2bps YoY NIM expansion while opex grew 11% YoY. Specific provision (SP) charge was contained at just 10bps (vs 17-20bps guidance).

• Loan growth was decent (+2% YoY and QoQ) thanks to non-trade corporate loans. Drivers were Singapore (commodity and energy) and India (broad- based). Despite the strong start, DBS said the 2Q pipeline would not be as robust as that in 1Q24. Deposits rose 3% YoY (+2% QoQ) but CASA slipped 7% YoY (-2% QoQ). CASA ratio was 51.2% (1Q23: 57.1%, 4Q23: 53.4%).

• NIM ticked up 2bps YoY … (+1bps QoQ) on the prospective reclassification of income from perpetual securities to NII from other non-II. The impact was 2bps. Also, SGD16bn in fixed rate assets were repriced in 1Q24 with another SGD24bn to be repriced in the coming quarters. A third of its total commercial assets have been locked in at fixed rates for the next 2-3 years. DBS maintained its guidance of a slight NIM squeeze this year.

• … while non-II outlook looks promising. DBS raised its fee income growth guidance to mid-to-high teens (from double digit growth). WM momentum appears to have carried through into 2Q on improved investor sentiment, and DBS thinks this is the effect of the strong net new money inflows in recent years. Also, cross-selling between DBS and Citi TW customers have been positive. Apart from that, cards look healthy but loan-related syndication fees could be volatile.

• Capital. DBS will continue to explore opportunities to return excess capital. Its capital build has been solid, despite the 70bps regulatory capital penalty.

• TP raised following the earnings revisions and refreshed GGM assumptions. Our TP of SGD38.90 includes a 2% ESG premium.

Source: RHB Research - 3 May 2024