Regional Recovery, New Investments Deliver Growth

• DBS (SGX:D05)’s 9M21 PAT was ahead of MKE and Street, supported by provision reversals. The Group continues to have excess reserves that could potentially surprise earnings on the upside going forward.
• Operationally, we expect loans & fees – especially wealth, transaction banking and credit cards – to see rising momentum. Increasing investments in digital, AI, retail wealth as well as India and China geographically could create new pathways for higher ROEs in the medium term, in our view.
• Maintain BUY.

Poised for Growth Delivery

• DBS's 3Q21 q-o-q NII held steady despite a 2bps fall in NIMs. The +2% q-o-q improvement in loan growth helped. We think momentum here should pick up going forward as the region re-opens. Its strong regional franchise and cheap CASA (70% of deposits) funding are critical success factors, in our view.
• Similarly, fee should see upside as demand for trade finance, cash management, advisory and loans increase.
• According to DBS's management, credit card spending is now above pre-Pandemic levels. This segment contributed 22% of fees in 2019 vs 16% 9M21. As regional travel rises (typically 14-15% of card spending vs 2% now), expect upgrades here.
• Separately, DBS wrote back S$138m of GP. DBS has S$600m of GP reserves above regulatory requirements, which could provide further opportunities for reversals (+8% 2022E PAT). With asset quality supportive, we have lowered 2021-23E credit costs by 33-38%.

Platforms for Expansion

• DBS is investing in several platforms for Group as DBS looks to spin-off or create partnerships with these ventures.

Maintain BUY on DBS With Higher Target Price

• We have raised DBS's 2022-23E opex – a level it traded up to following the recent O&M crisis.
• Maintain BUY.

Source: Maybank Kim Eng Research - 5 Nov 2021