• We think DBS's share price will react positively to its record S$2bn profit for 1Q21 vs our/consensus estimates of S$1.3bn/S$1.5bn.
• General provisions (GP) writeback of S$190m resulted in total impairments of only S$10m (or -1bp) in 1Q21. Wealth management/treasury income were at record highs.
• Strong management outlook with FY21F credit costs at less than S$1bn, double-digit full-year fee income growth & structural improvement in treasury.

DBS 1Q21 Net Profit Beat on the Back of S$190m General Provision Writebacks

• DBS (SGX:D05)’s 1Q21 net profit of S$2.0bn (+99% q-o-q/+72% y-o-y) was above our/consensus estimates of S$1.3bn/S$1.5bn. The beat was primarily due to a S$190m writeback of general provisions (GP), resulting in total impairments of only S$10m (-1bp) in 1Q21. Meanwhile, DBS's wealth management and treasury income levels were at record highs.
• 1Q21 net profit formed 35%/34% of our/consensus full-year forecasts.
• DBS declared interim dividend of S$0.18 for 1Q21. We project S$1.08 for the full year of FY21F (we expect MAS’s dividend cap of 60% of FY19’s payout to be lifted). A scrip dividend scheme will be applied to 1Q21 dividends.

Stellar Wealth and Trading Income; NIM Stable

• DBS's NIM was stable q-o-q at 1.49% in 1Q21 (4Q20: 1.49%) as benchmark rates stabilised. Average 3MSIBOR/SOR rose 1bp/7bp while 3MLIBOR slipped 2bp in 1Q21. NII dipped 1% q-o-q in 1Q21 (-15% y-o-y), although loan growth picked up to +4% q-o-q (4Q20: -0.1% q-o-q).
• DBS's fee income rose 28% q-o-q and 15% y-o-y on a strong recovery in business momentum. Wealth management fees came in at a record high of S$519m (+50% q-o-q/+29% y-o-y). Trade and transaction income also rose to a quarterly high (+22% q-o-q/ +22% y-o-y) but credit card income was slightly softer (-5% q-o-q, -2% y-o-y).
• Overall non-II performance was admirable (+53% q-o-q/+13% y-o-y), boosted by record high treasury income of S$794m (+101% q-o-q/ +12% y-o-y). This came from a doubling of trading income; investment gains were softer y-o-y (but stronger q-o-q). On balance, PPOP rose 35% q-o-q (-8% y-o-y) on the back of disciplined cost control.
• DBS made a S$190m (20bp) writeback of general provision, offsetting specific provisions of S$200m (21bp) in 1Q21. Overall credit costs totalled 1bp in 1Q21, significantly lower than our expected 42bp (S$400m) in 1Q21, which did not account for writebacks at this stage.

DBS Management Guidance

• DBS upgraded its full-year loan growth guidance to mid-to-high single-digit. The bank forecasts full-year fee income growth to be at double-digits.
• Full-year expenses are forecast to be around 3-4% higher than 2019 levels. The bank expects Lakshmi Vilas Bank to add 2% points to opex and incur ~1-2% y-o-y higher costs to expand its business.
• New NPA formation is below pre-pandemic levels. Full-year total allowances are likely to be below S$1bn.

Source: CGS-CIMB Research - 30 Apr 2021