DBS will release its results for the quarter and the 1HFY2023 ended June on Aug 3.
In their July 19 report, Choong and Lim are expecting DBS to record a net profit of $2.52 billion (-2% q-o-q, +39% y-o-y), as a strong Hong Kong Interbank Offered Rate (HIBOR) performance over the quarter helped to keep NIMs relatively stable, at -1 basis points (bps) q-o-q, coming off a 7 bp q-o-q NIM expansion in 1QFY2023.
“We think NIMs may now be flattish in 2QFY2023, as a rising HIBOR should be supportive of loan yields, therefore offsetting funding cost pressures”, the analysts say.
Despite DBS not cutting its fixed deposit rates from January to July this year, Choong and Lim expect funding cost pressures to weigh “comparably less” on its NIM given its higher current and savings accounts (CASA) ratio of about 60%.
See also: UOBKH raises TP on SIA to $6.22, FY2026 earnings to see lift on fuel cost savings
They note that DBS’s banking peers have cut their fixed deposit rates from about 4% in January to about 2.7% in July, albeit having lower CASA ratios of about 47% - 48%.
As expiring trade loans with declining margins were not renewed, the analysts expect DBS’s loan growth would likely be subdued in 2QFY2023 at -0.3% q-o-q.
Meanwhile, Choong and Lim think that the overall fee income in 2QFY2023 could be dampened by weaker growth momentum, although wealth management fees may hold steady as sentiment recovers.
The analysts expect trading and investment gains to be decent, albeit weaker q-o-q, as treasury customer sales remain strong. They also expect the cost-to-income ratio to hold steady at about 40% this quarter.
DBS’s credit costs
On the other hand, they believe that credit costs stayed benign in 2QFY2023, within management’s guidance of 10 - 15 bps for FY2023, while excess liquidity remains for now a deterrence against significant worsening in credit quality.
Finally, the analysts think that Singapore banks will still be viewed as a dividend play until the overhang of asset quality risks dissipates. In anticipation of firmer newsflow on the timeline of Fed rate cuts and the eventual terminal rate, Choong and Lim say that this will help spur risk-on sentiment and, therefore, wealth management performance across the banks.
For the 2QFY2023, the analysts are expecting DBS to distribute a dividend of 42 cents per share.
At its current share price levels, the bank is trading at 1.4x its FY2023 earnings, 0.5 standard deviation (s.d.) above mean, according to the analysts’ estimates.
As at 1.37pm, shares in DBS are trading at 14 cents higher or 0.43% up at $32.69.
