• DBS’s 4Q21 results were in line with our expectations. Loan growth at 9.9% was the highest in seven years. NPL ratio receded from 1.5% to 1.3% due to full repayment of two significant NPLs.
• DBS's quarterly dividend increased 9% q-o-q to S$0.36.
• We expect four rate hikes each in 2022 and 2023. We expect NIM to expand 15bp and 13bp respectively to 1.61% in 2023 and 1.74% in 2024. We expect dividend yield to improve from 3.9% in 2022 to 4.2% in 2023.

DBS's 4Q21 Earnings

• DBS Group (SGX:D05) reported net profit of S$1,393m for 4Q21, up 37% y-o-y but down 18% q-o-q. The results were in line with our net profit forecast of S$1,490m.
• Fastest loan growth in seven years. Loan growth was 9.9% y-o-y and 0.9% q-o-q in 4Q21. On a constant-currency basis, non-trade corporate loans expanded S$5b q-o-q, driven by Singapore and Hong Kong. Consumer loans grew S$2b q-o-q with expansion from housing loans and wealth management loans. NIM was stable at 1.43%.
• Non-interest income seasonally softer. Non-interest income dropped 21% q-o-q in 4Q21 due to seasonally lower net trading income and less gains from investment securities. Fees grew 9.1% y-o-y but eased 8.9% q-o-q. Contributions from loans-related fees and wealth management dropped sequentially by 27% and 18% q-o-q.
• Cost/income ratio seasonally higher at 50.7%. Operating expenses increased 5.8% y-o-y due to government grant available in the previous year. Underlying operating expenses were stable despite base salary increments carried out mid-year.

Asset Quality Improved

• NPL balance contracted 11.7% q-o-q due to full repayment of two significant NPLs in the transportation, storage & communications sector in Singapore in 4Q21. NPL ratio declined from 1.5% to 1.3%. Specific provision was a paltry S$67m (4Q20: S$363m) and DBS wrote-back general provisions of S$34m (3Q21: S$138m).
• DBS is rewarding shareholders with more dividends. DBS's board has proposed dividend of S$0.36 for 4Q21, representing an increase of 9% q-o-q.

DBS's Guidance for 2022

• Management maintained guidance of mid-to-high single in Shenzhen Rural Commercial Bank (SZRCB) and Citi Consumer Taiwan (completion in mid-2023). SZRCB contributed associate income of S$26m in 2H21. Management expects these new businesses to add S$1.2-1.3b to total income and S$0.5b to net profit per year.

DBS - Earnings Forecast and Recommendation

• We expect 4 hikes in 2022 (previous: 3 hikes), four hikes in 2023 (previous: three hikes) and no 2023F P/B, derived from Gordon Growth Model (ROE: 12.3%, COE: 8.0%, Growth: 1.5%).

Source: UOB Kay Hian Research - 15 Feb 2022