2Q22 in line; more NIM expansion in 2H22F
- 2Q22 net profit of S$1.82bn was broadly in line with our/consensus S$1.73bn/S$1.87bn estimates.
- PPOP of S$2.13bn was almost exactly as we had forecast but net profit was a slight beat on lower-than-expected impairments (4bp vs. our 14bp).
- NIM expanded 12bp qoq to 1.58%; we believe there is more upside in 2H22F as July exit NIM was above 1.8%. CTI was guided at 40%, ahead of peers.
4bp credit costs in 2Q22
? We consider 2Q22 net profit of S$1.82bn as broadly in line with our/consensus S$1.73bn/S$1.87bn estimates.
? The key variance to this set of results is credit cost. DBS recorded total impairments of S$46m or c.4bp credit costs (according to our calculations) vs. our expected 14bp. SPs for loans alone were 6bp; these were offset by a 2bp writeback in GPs (1Q22: S$55m or 5bp, FY21: S$53m or 1bp).
? NII rose c.12% qoq as NIMs rose c.12bp qoq to 1.58%. Average asset yields rose 11bp to 1.89% in 1H22 while funding costs increased 5bp to 0.38%.
? Loans inched up c.2% qoq, driven by trade and non-trade corporate loans in HK and SG. Housing loans and wealth management loans were stable qoq .
? Fee income was 14% weaker qoq (-12% yoy) as lower wealth management (-17% qoq, -21% yoy) and softer loan-related fees (-21% qoq, +3% yoy) offset stronger credit card fees (+9% qoq, +23% yoy). Treasury income also moderated due to less favourable market conditions.
? PPOP held steady qoq (+4% yoy) at S$2.13bn on the back of stable opex.
? DBS declared S$0.36 DPS for 2Q22 (1Q22: S$0.33).
DBS’s outlook guidance
? Business momentum of various revenue engines was mixed. Guidance for full-year loan growth of mid-single-digit percentage was unchanged. Fee income likely bottomed in 2Q22.
? The bank sees earnings upside from accelerated interest rate increases flowing through. NII sensitivity remains at S$18m-20m per basis point of US$ rates. July NIM was above 1.8%.
? CTI to improve towards 40%. Asset quality remains resilient.
Other key highlights
? Loan growth: 2% qoq in 2Q22 (1Q22: +1.5% qoq, FY21: +9.8%).
? NPL: 1.3% in 2Q22 (1Q21: 1.5%). CTI: 44% in 2Q22 (1Q22: 44%, FY21: 45%).
? CET1: 14.2% in 2Q22 (1Q21: 14.4%). ROE: 13.4% in 2Q22 (1Q22: 11%, FY21: 12.5%).
Reiterate Add and GGM-based TP of S$40.20
? We see neutral share price movement on the back of this set of results. Altho ugh results were in line, NIM expansion in the quarter was softer vs. its peers.