Shares in DBS Group Holdings closed 52 cents lower, or 1.56% down, at $32.75 on Aug 6, a day before the release of its 1HFY2024 ended June results. DBS shares had fallen 27 cents to $33 during the midday break, and the Aug 6 close price extended a five-day, 10.47% decline that began on Aug 1.
DBS will release its second-quarter earnings during the midday break on Aug 7, straying from the typical pre-open announcement. The bank had earlier said its results would be released after trading hours on Aug 7, but this was superseded in an Aug 2 bourse filing.
DBS’s peers United Overseas Bank U11 (UOB) and Oversea-Chinese Banking Corporation (OCBC) released their 1HFY2024 results on Aug 1 and Aug 2 respectively.
UOB reported core net profit of $3.05 billion for 1HFY2024, down 1% y-o-y; while OCBC posted record net profit of $3.93 billion, 9% higher y-o-y from last year’s record figure.
UOB’s net interest margin (NIM) in 2QFY2024 rose 3 basis points (bps) q-o-q but fell 7bps y-o-y to 2.05%. OCBC’s NIM fell 7bps q-o-q and 6bps y-o-y to 2.20% in 2QFY2024.
See also: Citi downgrades DBS, OCBC, UOB to ‘sell’ as first signs of US contraction emerge
On Aug 5, Citi Research analyst Tan Yong Hong downgraded Singapore’s three major banks to “underweight” following Citi’s new house view on rate cuts. Citi economists now expect 225bps of cuts by the US Federal Reserve in 10 months and see recent data as the first signs of US economic contraction.
Tan downgraded DBS, OCBC and UOB to “sell”, saying investors should “unwind their overweight positions”. Tan says past bullishness was supported by the higher-for-longer outlook, capital management upside and the strong US dollar outlook.
Citi’s new house view casts uncertainties on the earnings outlook. The sharp increase in US rate cuts expectations in FY2024, from 50bps to 125bps of cuts, should drive earnings downgrade, says Tan.
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“We now expect 10bps NIM contractions, each in 2025 and 2026. Lower long-term rates, which the Fed has upgraded to 2.6% in March and 2.8% in June, is a more material downgrade for target prices,” writes Tan.
According to Tan, Singapore’s banks take 133 to 308 days to bottom, based on past downturns.
The three banks saw tailwinds from higher-for-longer rates year to date, but that could be at risk, he reiterates.
Notably, Tan prefers the “buy”-rated SGX over the three local banks. “DBS has seen most selling due to relative overweight, but as the market's conviction for rate cuts increases, the sector should underperform.”
