No special DPS; bonus issue instead
- 4Q23 net profit missed our expectations due to higher-than-expected staff and overhead costs; it was in line with Bloomberg consensus forecast.
- DBS proposed a 1-for-10 bonus issue and declared a final DPS of S$0.54 in 4Q23. This was below our expected cash DPS of S$1.04 for 4Q23.
- It raised its quarterly DPS guidance to S$0.54 for FY24F, bringing annualised FY24F DPS to c.S$2.16.
- We expect negative share price movement given the DPS miss. DBS will hold its earnings briefing later this morning.
4Q23 core net profit missed our expectations
? DBS reported a 4Q23 core net profit of S$2.39bn (-9% qoq, +2% yoy). This was 6% below our S$2.5bn forecast but in line with Bloomberg consensus’ S$2.36bn estimate. FY23 core net profit formed 98%/100% of our/consensus’ full-year forecasts.
? 4Q23 core net profit missed our estimate mainly due to higher-than-expected opex (+8% qoq, +12% yoy) amid elevated staff costs. CTI in 4Q23 came up to 44%, vs. an average of c.38% in 9M23.
? No special DPS was declared but DBS proposed a 1-for-10 bonus issue. To note, bonus shares will not be entitled to the 4Q23 final cash dividend but will qualify for dividend payments from 1Q24F.
? DBS declared a final ordinary DPS of S$0.54 in 4Q23 (4Q22: S$0.42 ordinary DPS and S$0.50 special DPS) – this was below our expectation of S$1.04 (which included a special S$0.50 cash DPS). This brought FY23 full-year DPS to S$1.92 (FY22: S$2.00).
? It raised its quarterly DPS guidance to S$0.54 from 4Q23, bringing annualised DPS in FY24F to S$2.16.
? The variable pay for DBS’s Group Management Committee and CEO will be cut by 21-30% yoy in FY24F to take accountability for technological disruptions.
NIM contracted 6bp qoq but fees held up; credit costs contained
? NIM contracted 6bp qoq to 2.13% (vs. consensus forecast of 2-3bp decline). This was DBS’s first quarterly margin contraction since the start of the current Fed fund rate hike cycle in 2022. As loan growth was flattish in 4Q23, NII dipped 2% qoq (+16% yoy). Full-year FY23 NIM came up to 2.15% (FY22: 1.75%).
? Fees held up well (+3% qoq, +31% yoy), boosted by cards. Overall treasury income was weaker than expected (-16% qoq, +9% yoy).
? Credit cost was contained at 13bp in 4Q23. Specific provisions comprised 11bp and general provisions accounted for 2bp.
FY24F outlook and guidance
? A more settled macroeconomic outlook; geopolitical risks remain.
? Guided for FY24F NII to be around FY23 levels. NII to be supported by full-year impact of Citi Taiwan consolidation. There is likely a trade-off between NIM and loan growth, DBS said. DBS expects full-year FY24F NIM to be slightly below FY23’s exit NIM of 2.13%
? Double-digit fee income growth, driven by wealth management and cards.
? It guided for CTI to be in the low-40% range.
? Total allowances to normalise to 17-20bp of loans. General provisions to be released if specific provisions are higher than expected.
? It guided for ROE to be in the range of 15-17%.
? Reiterate Hold with GGM-based TP unchanged at S$35.30. We think the impending Fed rate cuts could be an overhang on the share price. Upside risks include a quicker-than-expected pick-up in management fees. Downside risks include drastic Fed rate cuts hurting NIMs.