Earnings Report /

DBS Group Holdings: Higher net interest income support profits

  • 1H22 PATMI is 47% of our FY22e forecast. 2Q22 DPS up 9% YoY at 36 cents.

  • NIM increased 13bps YoY to 1.58% and loan growth of 7% YoY lifted NII.

  • Maintain BUY with an unchanged target price of S$41.60.

Glenn Thum
Glenn Thum

Research Analyst

5 August 2022
Published byPhillipCapital

2Q22 earnings of S$1.82bn in line with our estimates due to higher net interest income offset by lower fee income and other non-interest income. 1H22 PATMI is 47% of our FY22e forecast. 2Q22 DPS up 9% YoY at 36 cents.

NIM increased 13bps YoY to 1.58% and loan growth of 7% YoY lifted NII. NIM grew 12bps QoQ. Fee income fell 12% YoY and other non-interest income dropped 10% YoY due to weaker market sentiment.

Maintain Buy with an unchanged target price of S$41.60

Our FY22e estimates remain unchanged. For FY22e, management guided benign provisions, stable growth in loans and improved NIMs. We believe there is upside to the NIM guidance. A 50bps move in interest can raise earnings by 13%.

The Positives

+ NII up 17% YoY. NII grew 17% YoY to S$2.5bn due to NIM increase of 13bps YoY to 1.53% and continued loan growth of 7% YoY. Loan growth was driven by trade and corporate non-trade loans, while housing loans and wealth management loans were little changed. NIM improvement was mainly due to the rising interest rates as the impact of interest rate hikes was more fully felt. Management has lifted NIM guidance to 1.70-1.75% for FY22e (from 1.58-1.60%).

+ Asset quality stable; 2Q22 allowances at S$46mn. 2Q22 total allowances were lower YoY and QoQ due to lower SPs of S$69mn for the quarter (S$167mn in 1Q22). Further, credit costs improved by 6bps YoY to 8bps. The GP write-back of S$23mn for 2Q22 was from credit upgrades and transfers to NPA. GP reserves remained prudent at S$3.74bn, with NPA reserves at 113% and unsecured NPA reserves at 199%. The NPL ratio was maintained at 1.3% as new NPA formation remained low.

+ Loan growth up 7%; deposits up 9% YoY in 2Q22. Loans grew 7% YoY and 1% QoQ to S$425bn. This was mainly driven by trade and corporate non-trade loans. Housing and WM loan growth was sustained at the previous quarter’s levels. Management lowered its FY22e loan growth guidance to mid-single digit (from mid to high-single digit). Deposits grew 9% YoY and 1% QoQ to S$528bn, and current and savings accounts (CASA) accounted for 72% of customer deposits.

The Negative

- Fee income fell 12% YoY. The fee income decline YoY was mainly due to weaker market sentiment affecting wealth management and investment banking. WM fees fell 21% YoY to S$337mn as market conditions further weakened during the quarter. Investment banking fees fell by 54% YoY to S$30mn alongside a slowdown in capital market activities. Nonetheless, card fees improved 23% YoY to S$203mn as borders start to reopen and spending increased, while loan-related fees moderated from record levels. Other non-interest income fell 10% due to less favourable market opportunities.