• Maintain BUY, with new SGD41.20 TP from SGD38.90, 11% upside and c.7% FY25F yield. Post meeting with management, we think 2Q24 earnings could ease sequentially as non-II wanes from a very strong 1Q24. However, we are not expecting any major negative surprises. With the sector’s earnings outlook likely remaining muted amid the monetary easing cycle, dividend yields and DPS growth should continue as the main driver for SG Banks’ share price performance. DBS, in our view, is best positioned to deliver on this, thanks to its absolute DPS commitment.

• Expecting a softer 2Q24 reporting quarter QoQ. This is mainly because of the high non-II base enjoyed previously, specifically, other non-II, which jumped 43% QoQ (+24% YoY) aided by non-recurring gains from forex hedges. 1Q24 fee income was up 23% QoQ (+23% YoY), and we sensed from our discussion that the positive wealth management momentum appears to have been sustained, which would be an overall positive for fees. As for the NII line, management had previously mentioned that the 2Q loan pipeline was not as robust as 1Q and thus, we think NII could be muted as well. Similarly, we are not expecting any major movements in NIM. Finally, given the operating environment does not appear to have changed much either way, asset quality should remain under control. 1Q24 special provisions (SP) were 10bps vs 17-20bps guidance, and we are not discounting the possibility that 2Q SP will continue to trend below guidance.

• Expect an interim DPS of 54 SG cents, unchanged from 1Q24 but up from the 43.6 SG cents (adjusted for bonus issue) in 2Q23. We have assumed the step up in interim DPS only takes place in 4Q, unlike last year, where there were two step ups – in 2Q23 and 4Q23. Also, we have not factored in any capital management initiatives but even then, its dividend yield based on its commitment to raise absolute DPS by 24 SG cents annually is sufficient to provide investors with an attractive 6.6% yield for FY25F.

• Overall – 2Q24 could be an uneventful reporting quarter. With the onset of the rate cut cycle approaching, we think the two main areas of investor interest would be on forward guidance on the impact of rate cuts and updates on capital management initiatives. Apart from that, updates on the outlook with respect to asset quality and the wealth business will also be of interest.

• Forecasts. Pending the upcoming 2Q24 results in August, we leave our earnings forecasts unchanged. We project FY24F PATMI by 3.5% YoY on the back of a 6% YoY rise in operating income – both broadly in line with management’s guidance. Beyond that, earnings growth is projected to stay muted at +1-2% YoY as NIM pressure from rate cuts kick in.

• TP is raised to SGD41.20 from SGD38.90 after we roll forward our valuation to FY25F. There is no change to our GGM-derived fair P/BV of 1.69x nor the 2% ESG premium (based on in-house methodology) we ascribed.

Source: RHB Research - 18 Jul 2024