Yahoo Finance With $2.4 bil in excess capital, could DBS be a 'payout superstar'?
“We do not believe the group would have the appetite for sizable M&A in the medium term.”
Following DBS Group Holdings’ results for 2QFY2022 ended June, analysts think the bank could be a “payout superstar” as excess capital could raise dividends.
DBS reported net profit of $1.82 billion for the 2QFY2022 ended June, 7% higher than the net profit of $1.70 billion in the same period the year before. This brings the bank’s net profit for the 1HFY2022 to $3.62 billion, which fell by 3% compared to its record net profit of $3.71 billion reported in the 1HFY2021.
DBS also declared an interim dividend of 36 cents, bringing 1HFY2022 dividend to 72 cents per share.
RHB Group Research analysts are maintaining “buy” on DBS, with the most conservative target price among the three research houses named here, at $37.60.
In an Aug 5 note, RHB analysts say 1HFY2022 results are in line. “The bright spot remains tailwinds from sharper- and faster-than-expected hikes in the US Fed’s funds rate that will have a positive impact on net interest margin (NIM) over two years.”
NIM, which reached 1.80% in July, is expected to rise above 2% by 4QFY2022. This compared with earlier guidance of 1.58%-1.6% in FY2022 with the exit rate at 1.8%. DBS reiterated that NII would rise by $18 million-$20 million on every 1bp hike in US rates.
In addition, RHB thinks fee income, which dropped as clients cut back on their trading activities, will remain subdued. “Management believes fee income has bottomed in 2QFY2022. That said, uncertainty in capital markets would continue to weigh on the wealth management business as investors stay side-lined. Overall, fee income is expected to decline y-o-y in FY2022.”
‘In line with estimates’
Meanwhile, PhillipCapital Research analyst Glenn Thum is maintaining “buy” on DBS with an unchanged target price of $32.41. “2QFY2022 earnings of $1.82 billion are in line with our estimates due to higher net interest income offset by lower fee income and other non-interest income. 1HFY2022 PATMI is 47% of our FY2022F forecast.”
In an Aug 5 note, Thum points to DBS’ stable asset quality. “2QFY2022 allowances at $46 million. 2QFY2022 total allowances were lower y-o-y and q-o-q due to lower special provisions (SPs) of $69 million for the quarter.”
Further, credit costs improved by 6 bps y-o-y to 8 bps, notes Thum. “The general provisions (GP) write-back of $23 million for 2QFY2022 was from credit upgrades and transfers to NPA. GP reserves remained prudent at $3.74 billion, with non-performing assets (NPA) reserves at 113% and unsecured NPA reserves at 199%. The non-performing loan (NPL) ratio was maintained at 1.3% as new NPA formation remained low.”
Payout superstar
Maybank Research analyst Thilan Wickramasinghe is the most bullish of the research houses here, maintaining “buy” on DBS with a raised target price of $42.18 from $41.22 previously.
This is despite DBS missing Wickramsinghe’s expectations. “DBS missed 1HFY2022 expectations on lower-than-expected interest income. This is set to turnaround and accelerate in 2HFY2022 as asset re-pricing picks up.
He adds in his Aug 4 note that DBS’ asset quality is a key risk. “But the group’s strong portfolio and provisioning offers a buffer. We believe there are significant upside risks to dividend payouts going forward as the group looks to return excess capital. A potential China re-opening, continued execution in India and a turnaround in wealth fees are near term catalysts.”
The group’s CET-1 ratio of 14.2% is above the upper end of its guided range of 12.5%-13.5%. “As such, we estimate DBS is carrying $2.4 billion of excess capital. With two large deals (LVB India, Citi Taiwan) to digest, we do not believe the group would have the appetite for sizable M&A in the medium term. As such, there are upsides to higher dividends going forward,” writes Wickramashinghe.
Shares in DBS closed 43 cents higher, or 1.32% up, at $32.84 on Aug 5.
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