• DBS’ 3Q21 results were above expectations. It registered broad-based growth in loans and fee income. Asset quality remained stable and DBS was able to write-back general provisions of S$138m.
• Management continues to grow new platforms LVB, SZRCB and China securities JV. It has also established DBS Finnovation to potentially unlock the value of its digital initiatives.
• We expect DBS's dividend yield to improve from 3.6% in 2021 to 4.3% in 2022. Maintain BUY.

Dbs' 3q21 Results

• DBS (SGX:D05) reported net profit of S$1,700m for 3Q21 (+31% y-o-y), which is above our forecast of S$1,622m.
• Broad-based loan growth. Loans expanded 9% y-o-y and 2% q-o-q, driven by drawdowns for non-trade corporate loans in Singapore and Greater China, continued strong bookings for residential mortgages and wealth management loans. NIM compressed 10bp y-o-y and 2bp q-o-q to 1.43% due to lower interest rates.
• Broad-based growth in fee income. Fees and commissions grew 11% y-o-y. Wealth management fees increased 16% y-o-y due to higher customer activities across a range of investment products. Transaction services increased 18% y-o-y due to cash management and trade finance. Cards grew 13% y-o-y due to recovery in consumer spending. Higher trading gains were offset by lower investment gains.
• Investing to secure and protect future growth. Operating expenses increased 8% y-o-y due to increases in base salaries carried out mid-year and investments for future growth. Excluding Lakshmi Vilas Bank (LVB) and the Job Support Scheme, underlying operating expenses grew 2% y-o-y.
• Third consecutive quarter of write-back. NPL ratio was unchanged at 1.5%. Specific provisions dropped 59% q-o-q to S$68m due to repayment for NPL in the oil & gas sector. General provisions of S$138m were written back as portfolio quality improves. DBS’s reserve for general provisions of S$3.9b is S$0.6b above MAS’ minimum requirement.
• DBS declared a dividend of S$0.33 for 3Q21. Scrip dividend scheme is not applicable to the interim dividend.

DBS' Guidance for 2022

• Management guided mid-to-high single Finnovation could be held directly under DBS Group Holdings. DBS could bring in strategic investors for these new digital businesses, which would help them IPOs.

DBS - Valuation & Recommendation

• We raise our 2022 net Gordon Growth Model (ROE: 11.7%, COE: 7.75%, Growth: 1.5%).

Source: UOB Kay Hian Research - 8 Nov 2021