Analysts satisfied with DBS 1QFY2022 results, warn of 'hazy' 2H ahead

“1QFY2022 earnings of $1.80 billion is in line with our estimates. 1QFY2022 PATMI is 24% of our FY2022F forecast. 1QFY2022 distribution per share (DPS) is stable q-o-q at 36 cents,” writes Thum in a May 5 note.

“Net interest margin (NIM) fell 3 basis points (bps) y-o-y to 1.46% but loan growth of 8% y-o-y cushioned net interest income (NII). NIM grew 3bps q-o-q. Fee income grew 9% q-o-q but fell 7% y-o-y due to weaker market sentiment,” he adds.

The fee income decline was mainly due to weaker market sentiment affecting wealth management and investment banking. Wealth management fees fell 21% y-o-y to $408 million with declines in investment product sales mitigated by higher bancassurance income.

Investment banking fees fell by 12% y-o-y to $43 million as fixed income activities fell. Nonetheless, fee income grew 9% q-o-q mainly due to higher fees from loan-related activities, transaction banking and wealth management as it recovered from a seasonally lower 4QFY2021.

See also: Almost in sync, all three Singapore banks report y-o-y earnings drop of 10% for 1QFY2022

Despite economic uncertainties from macroeconomic factors such as slower growth, higher inflation and supply chain disruptions, loans and transaction pipelines are expected to be strong, writes Thum.

Thum’s FY2022 estimates remain unchanged. “For FY2022, management guided benign provisions, continued growth in loans and stable NIMs. We believe there is upside to NIM guidance. A 50bps move in interest can raise earnings by 13%.”

However, while RHB Group Research analysts note “bright NIM prospects”, they think these upsides are moderated by headwinds. As such, RHB is maintaining “buy” on DBS but with a lower target price of $38.10 from $42.70 previously.

See also: DBS 1Q net profit down 10% y-o-y, up 30% q-o-q

“DBS got off to a good start in 1QFY2022, but its 2HFY2022 outlook has turned somewhat hazy due to growing macroeconomic headwinds. Still, stress tests point to a limited impact on asset quality, while rising US rates will have a significant positive impact on NIM,” write the RHB analysts in a May 4 note.

“We cut our target price as we raised the equity risk premium given geopolitical tensions, inflation fears and China’s pandemic lockdown, and lowered the ESG premium to 4% (from 6%) based on RHB’s in-house methodology,” they add.

Meanwhile, OCBC Investment Research analysts are recommending investors “buy” DBS with a fair value of $40.

“2022 guidance reflects a constructive outlook ahead, driven by mid to high single-digit loan growth, double-digit fee income growth and improvement in NIMs, which should help mitigate higher expense and potential uptick in credit risks amid a rising rate and inflationary environment,” notes OCBC in an April 29 note.

Upside is expected from rising rates and a diversified franchise strengthened by recent inorganic transactions and improved digital capabilities, although recent increase in macro uncertainties have weighed on fee income generation, they add.

DBS’s NIM sensitivity is estimated at $18 million - $20 million of net interest income for every 1bps US rate hike. Similar to global banks, some expense growth is expected in 2022, which DBS believes will be slightly above 2021.

While Citi Research has suspended its rating and target price since Jan 28 owing to its involvement in DBS’ acquisition of Citi’s consumer banking business in Taiwan, analysts Robert Kong, Tan Yong Hong and Tian Yafei say DBS’s 1QFY2022 results are in line with expectations.

“Management remains cautious into 2HFY2022 on macroeconomic and geopolitical uncertainties, a marked change from the optimistic tone in 4QFY2021 results briefing. However, DBS retains credit cost guidance broadly at FY2021 levels, and guides any conservatism in general provisions (GP) writeback to be offset by higher NII from rising rates,” they write in a May 3 note.

As at 10.22am, shares in DBS are trading 41 cents down, or 1.20% lower, at $33.64.