In-Depth Analysis of DBS Group Holdings Ltd – Q3 2024
Broker Name: UOB Kay Hian
Date: Friday, 08 November 2024
Introduction
DBS Group Holdings Ltd, a prominent pan-Asian banking group, has reported robust performance in Q3 2024. This comprehensive analysis delves into the detailed financial metrics, strategic initiatives, and future outlook of DBS, providing a thorough understanding for investors and stakeholders.
Company Overview
DBS Group Holdings Ltd is a leading banking group with significant operations in Singapore and Hong Kong, and a presence in India, Indonesia, Taiwan, and China. With a substantial market capitalization of S\$118,602.1 million, DBS continues to be a key player in the financial sector.
Q3 2024 Financial Performance
DBS achieved a record net profit of S\$3,027 million in Q3 2024, marking a 15% year-over-year (yoy) increase. This impressive performance was driven by a surge in wealth management fees and markets trading income. Notably, non-performing loans (NPLs) declined by 8% quarter-over-quarter (qoq) due to sizeable repayments and recoveries.
Net Interest Income
Net interest income rose by 2.6% yoy, with loans growing by 2% yoy on a constant-currency basis. Despite a mild net interest margin (NIM) compression of 3 basis points (bp) qoq to 2.11%, the bank maintained its upward trajectory in interest income.
Wealth Management
Wealth management fees saw a significant increase of 55% yoy to S\$609 million, supported by broad-based growth from buoyant market sentiment and strong sales of investment and bancassurance products. Assets under management (AUM) expanded by 13.6% yoy to S\$401 billion.
Markets Trading Income
DBS experienced a notable surge in markets trading income, which doubled yoy to S\$331 million in Q3 2024. This growth was attributed to increased foreign exchange, interest rate, and equity derivative activities driven by market volatility.
Operating Expenses
Operating expenses increased by 10% yoy to S\$2,249 million, with the acquisition of Citi Taiwan accounting for 3 percentage points (ppt) of the increase. Despite this, the cost-to-income ratio remained healthy at 39.1%.
Asset Quality
DBS’s asset quality remained stable, with the NPL ratio falling from 1.1% to 1.0%. Specific provisions were within management’s full-year guidance of 10-15bp, standing at 14bp.
Capital Adequacy
The bank maintained robust capital adequacy with a CET-1 CAR of 17.2% based on transitional arrangements and 15.2% fully phased-in. The Board maintained the quarterly dividend at 54 S cents for Q3 2024.
Future Outlook and Guidance
2025 Guidance
For 2025, management anticipates net interest income to remain around 2024 levels due to NIM compression offset by a 4% loan growth. Non-interest income is expected to grow at a high single-digit rate, driven by wealth management and treasury customer sales. Trading income is projected to benefit from lower funding costs. Overall, total income is expected to increase by a low single digit, with specific provisions anticipated to be 17-20bp.
Capital Management
The Board has established a new share buyback program worth S\$3 billion, aimed at reducing the fully phased-in CET-1 CAR by approximately 0.8ppt. Despite this, the CET-1 CAR would remain high at 14.4%, above DBS’s preferred operating range of 12.5-13.5%. Therefore, the bank plans to continue returning surplus capital to shareholders through regular quarterly dividends, special dividends, and share buybacks.
Acquisition Strategy
DBS adopts a disciplined approach to acquisitions, considering opportunities in Malaysia, Indonesia, and India if three conditions are met: attractive pricing that is accretive to earnings, the ability to integrate and operate the business effectively, and realization of revenue and cost synergies.
Earnings Revision and Valuation
UOB Kay Hian has raised its earnings forecast for DBS by 1% for 2025, factoring in higher fee income, increased trading income, and lower credit costs, partially offset by higher taxes. The target price is set at S\$46.95, based on a 1.95x 2025F P/B derived from the Gordon Growth Model, with an ROE of 14.9%, COE of 8.5%, and growth of 1.8%.
Key Financials
Year |
2022 |
2023 |
2024F |
2025F |
2026F |
Net Interest Income (S\$m) |
10,941 |
13,642 |
14,164 |
13,787 |
14,147 |
Non-Interest Income (S\$m) |
5,561 |
6,538 |
7,859 |
7,570 |
7,934 |
Net Profit (S\$m) |
8,196 |
10,062 |
11,234 |
10,021 |
10,370 |
EPS (S\$ cents) |
318 |
395 |
397 |
354 |
370 |
P/E (x) |
13.1 |
10.5 |
10.5 |
11.8 |
11.3 |
P/B (x) |
2.0 |
1.8 |
1.8 |
1.7 |
1.7 |
Dividend Yield (%) |
4.8 |
4.6 |
5.3 |
5.8 |
5.8 |
Net Interest Margin (%) |
1.7 |
2.2 |
2.1 |
2.0 |
1.9 |
Cost/Income (%) |
43.0 |
41.1 |
40.0 |
42.0 |
41.9 |
Loan Loss Coverage (%) |
121.8 |
128.1 |
135.0 |
137.0 |
137.5 |
Conclusion
DBS Group Holdings Ltd has delivered a stellar performance in Q3 2024, showcasing its strong financial health and strategic foresight. With continued focus on capital management, disciplined acquisitions, and robust earnings potential, DBS remains a compelling investment opportunity. As the bank navigates the dynamic market landscape, its commitment to shareholder returns and sustainable growth will be key drivers of its future success.