• Still BUY this preferred sector pick, new SGD44.70 TP from SGD41.40, 7% upside with c.6% FY25F yield. DBS’ 3Q24 results beat estimates, and management reinforced its capital return commitment by announcing a SGD3bn share buyback programme while reaffirming its progressive dividend policy. We think markets could be volatile in the near term, post-US presidential election. In our view, Singapore banks may offer investors a safe haven on the FX front and shifting rates outlook, among others, further supported by attractive dividend yields and relatively low-risk earnings.

• 3Q24 results a beat,with reported PATMI of SGD3bn (+9% QoQ, +17% YoY) bringing 9M24 net profit to SGD8.8bn (+12% YoY) – at 82% of our and 80% of consensus FY24F estimates. Strong investor sentiment helped boost wealth fees, which was the main reason for the beat. While NII, trading income and opex were also tracking favourably against our forecasts, we expect the gap to narrow in 4Q on a combination of rate cuts and seasonality. 9M24 reported ROE was 18.8% (FY23: 18%) while the fully phased-in CET-1 ratio under Basel III reforms looked solid at 15.2% (2Q24: 14.8%; 3Q23: 14.1%). As expected, DBS declared a 3Q24 DPS of 54 SG cents, which brought 9M24 DPS to SGD1.62 (3Q23 and 9M23: 43.6 cents and 125.5 cents, adjusted for bonus). 9M24 payout ratio was 53%, vs 46% in 9M23.

• Results highlights. 3Q24 non-II (+14% QoQ; +28% YoY) was the main standout. Wealth fees (+18% QoQ; +55% YoY) underpinned fee growth, benefiting from strong investor sentiment, while other non-II was up 25% QoQ (+24% YoY) from improved customer flows and trading opportunities from market volatility. Otherwise, loan and deposit growth were muted, partly due to SGD strength, while asset quality improved on higher repayment and recoveries from previous oil & gas NPLs and property-related loans from a local money laundering case and in North Asia.

• Share buyback expands capital return toolkit. DBS also announced a SGD3bn share buyback programme as part of its commitment to return excess capital. Shares bought back (DBS’ preference is to buy on weakness) will be cancelled, which will help lift EPS and ROE. While this is expected to reduce the fully phased-in CET-1 ratio by 80bps, DBS said it would still be sitting on excess capital north of SGD3bn that can be utilised.

• Flat 2025 pretax profit guided with commercial book non-II driving income growth, offset by opex growth and a conservative SP charge assumed. 2025 PATMI, however, is expected to be lower YoY due to the global minimum tax rate of 15%. SGD55bn in fixed rate assets is expected to be repriced next year, and there could be upside to NII from higher-than-expected rates.

• FY24F, FY25F and FY26F PATMI raised by 3% , 1% and 3% following the better-than-expected results. Accordingly, we upped our TP to SGD44.70 on a higher ROE assumption, given the continued strong earnings delivery and commitments to capital returns. Our TP includes a 2% ESG premium.

Source: RHB Securities Research - 8 Nov 2024