CGS International analysts Andrea Choong and Lim Siew Khee have kept their “hold” call on DBS Group Holdings with an unchanged target price of $43 ahead of the bank’s earnings for the 4QFY2024 ended Dec 31, 2024. The bank will release its results for the 4QFY2024 and FY2024 on the morning of Feb 10.
“We expect DBS to post 4QFY2024 net profit of $2.7 billion,” write Choong and Lim in their Jan 13 report. The analysts’ estimate represents a 11% q-o-q drop but an increase of 13% on a y-o-y basis.
They add that overall loan growth is likely to have stayed soft due to “sluggish” corporate demand although this is slightly offset by the stronger US dollar (USD) in the 4QFY2024. The analysts expect DBS’s loans to grow by 0.5% q-o-q. In tandem, they believe that DBS’s loan growth for the FY2024 likely came in within the bank’s estimates within the low-single digit range.
In the 4QFY2024, Choong and Lim have estimated DBS’s net interest margin (NIM) to be at 2.13%, 2 basis points (bps) higher q-o-q. Their estimate is based on the bank’s exit NIM of 2.15% in the 3QFY2024, above its quarterly NIM of 2.11%, sustaining into October 2024. “[This is] due to less accounting asymmetry on how interest income is booked.”
In addition, DBS has a fixed-rate asset book of some $190 billion, of which $50 billion is said to be maturing in FY2025. This may attract some yield pick-up in the quarters to come, the analysts note.
On wealth, even though the bank displayed strong wealth management momentum in its previous quarters, the analysts expect seasonal factors to slow earnings in the segment.
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In line with this, the analysts are expecting DBS’s cost-to-income ratio (CIR) to increase to 42% in the 4QFY2024, but remain within the bank’s guidance of 40% for the full year.
“We believe credit costs were benign at 11 bps in 4QFY2024,” they write.
All three banks are likely to have seen a seasonally softer set of earnings for the 4QFY2024 due to lower business activity and higher leisure travel and year-end festivities, the analysts note.
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“Broadly, we think NIM stayed rather stable in 4QFY2024 despite the 50 bps US Fed Funds rate cut in November [and] December 2024 as its effects may be more noticeable only in 1QFY2025 - 2QFY2025 when it takes effect in both asset yields and funding costs,” they write.
All three Singapore banks also said they will declare final dividends in the 4QFY2024. With this, Choong and Lim expect DBS to raise its ordinary dividend per share (DPS) to 60 cents from 4QFY2024 onwards. “DBS estimates $6 billion in transitory excess capital (due to Basel III reforms); $2 billion will be used redeem its additional tier-1 capital securities, with the rest available for shareholder return.”
To this end, Choong and Lim say they remain neutral on DBS as they believe investors have “priced in the positive outlook for NIM and wealth management in FY2025.”
Their target price of $43 represents a downside of 2.6% to DBS’s share price of $44.13 as at Jan 10 and around 2.05% lower than the bank’s closing share price of $43.90 as at Jan 15.
