DBS Group Holdings D05 shares rose 6.5% to reach $41.69 prior to the midday break on Nov 7, after the bank’s latest quarterly results beat forecasts. As at 12pm, DBS shares had reached an intra-day high of $41.87, 6.9% above yesterday’s close.
With a proposed dividend of 54 cents per share, DBS will pay an estimated $1.536 billion in dividends for 3QFY2024 ended Sept 30. While the proposed dividend is unchanged for the third consecutive quarter, the bank announced a $3 billion share buyback programme alongside its results. DBS shares will be purchased in the open market and cancelled for the first time.
That said, the share buyback does not preclude a step-up in dividends or special dividends in the coming quarters. Responding to The Edge Singapore, DBS CEO Piyush Gupta says the bank “still has a lot of capital to return”. “We have anything from $3 [billion] to $5 billion of more capital to return even after this.”
Gupta, who will relinquish his role in March 2025 to current deputy CEO Tan Su Shan, says DBS is “going to have to use all these engines” to return capital to shareholders.
“It is not a question of ‘Why do you not do one over the other?’ We're just trying to use every tool. You remember, a couple quarters [ago], we even used the bonus issue to be able to return some dividends back to shareholders,” Gupta adds. DBS announced a 1-for-10 bonus share issue in February at the release of its FY2023 results.
‘Anytime is a good time’
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Gupta acknowledges there may be questions on whether the share buyback programme is poorly-timed, given the current high share price. “In reality, if you want to actually buy back and cancel shares, and if you have a strong belief in the fundamentals of the business, anytime is a good time.”
Gupta, who joined the bank in 2009, says he is “struck by the fact that companies like JP Morgan and Apple” continue to do share buybacks, “even at relatively high price-to-book”. He adds that the bank will be “thoughtful and prudent” about when to exercise its share buyback. “The important thing, though, is that it reflects our continued commitment to capital management.”
Looking ahead to FY2025, Gupta says net profit “is likely to be slightly lower” than FY2024 levels due to the global minimum effective tax of 15%. The tax floor kicks in next year for large Singaporean multinational enterprises, under the Base Erosion and Profit Shifting initiative (BEPS 2.0), a global framework for the reform of international tax rules.
See also: DBS 3QFY2024 net profit up 15% y-o-y, 8% q-o-q to $3.027 bil, announces $3 bil share buyback
“The impact of that to DBS is about $400 million and so if we factor that in, we might see a little bit of a drag on the bottomline,” says Gupta.
From left: DBS CEO Piyush Gupta, chairman Peter Seah and deputy CEO Tan Su Shan at the bank's 1HFY2024 results briefing on Aug 7
Tan, who will begin her term just months after the tax floor is set to kick in, says DBS will “stick to the toolkit” to “pay more dividends as we make more [profit], potentially [announcing a dividend] step-up or share buybacks”. “If we do have some tailwinds because of rates going up, then I think we will continue the path of, you know, as you earn more, you pay more.”
DBS reported net profit of $3.027 billion for 3QFY2024, 15% higher y-o-y and 8% higher q-o-q. This is the first time third-quarter net profit has surpassed $3 billion. Including one-time items recorded this time last year, such as the acquisition of Citi Taiwan, net profit would have risen 17% y-o-y.
DBS’s 3QFY2024 net profit beat the $2.74 billion average estimate by analysts surveyed by Bloomberg, surpassing the forecast by more than 10%. Meanwhile, DBS’s 9M2024 net profit rose 11% y-o-y to a new high of $8.786 billion, and the bank appears on track to beat FY2023’s record net profit of $10.3 billion, which had crossed the $10 billion mark for the first time.
DBS benefits more from high rates
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DBS’s results come just hours after Kamala Harris conceded the US presidential election to her rival Donald Trump, who is set to begin his second term in January. The US 10-year Treasury rate has risen to 4.42%, compared to 4.26% the previous market day.
The general view is that the Trump regime will be more inflationary, says Gupta. “If that is the case, then it is possible that the Fed’s monetary policy might stay tighter than is currently being projected. And obviously, if rates stay higher, then that helps our net interest margin.”
A potentially higher interest rate environment is “generally better for DBS”, says Gupta, even though the bank has not forecasted strong loan growth next year, at around 4%-5%. “Sensitivity shows that we benefit more from the interest rate than we give up on the balance sheet,” he adds.
DBS’s “current assumption” is that it will receive “very minimal benefit” from fixed asset repricing in 2025, adds Gupta. “We'll still get some benefit, but the new fixed assets will replace assets [that] are already relatively well-priced.”
Responding to The Edge Singapore, Tan says the Trump regime will “probably” bring “more volatility in interest rates”. “If rates do go up, we will potentially see loan growth maybe a bit muted, but we will have the tailwinds of rates and rising interest income. Having said that, though, I think this year, whilst loan growth was muted, actually new loan growth was actually quite strong; we saw a lot of loan repayments.”
Loans expanded $3 billion, or 1% q-o-q, in constant-currency terms to $418 billion in 3QFY2024, led by a $2 billion growth in trade loans. Loans rose 2% in constant-currency terms over 9M2024.
Shares in DBS had closed 6 cents higher, or 0.15% up, at $39.15 on Nov 6.
Photo: DBS
