Analyst Note| Michael Wu, CAIA |
DBS Group wrapped up the Singapore banks’ second-quarter results with a strong showing. DBS’ June quarter net profit increased 7% year on year to SGD 1.82 billion, or 1% higher quarter on quarter. Our SGD 41 fair value estimate is unchanged, and DBS remains our preferred pick among the Singapore banks. With net interest income expected to increase further in 2023, net fee income to recover and Citi Taiwan acquisition to contribute, we forecast return on equity to improve to 16%. The bank noted higher profitability should see cost/income decline to sub-40%, even including additional investments. With the bank sitting on a high level of provisioning and rising profitability continuing to underpin increase in common equity Tier 1 ratio, the bank noted a capital management initiative may be likely at the end of the year. Its common equity Tier 1 ratio is 14.2%, but the bank expects a 70-basis-point impact from the Citi Taiwan acquisition. Still, the ratio would be at the high end of the bank’s target range of 12.5% to 13.5%. A capital management initiative should serve as a positive catalyst, in our view. Second-quarter dividend is SGD 0.36 per share, in line with the first quarter, and we continue to expect an increment in the fourth quarter, taking our full-year dividend forecast to SGD 1.47 per share.