DBS Group Q4 preview: Where next for the D05 share price?

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Josh Warner
By :  ,  Market Analyst

When will DBS Group report Q4 earnings?

DBS Group will release fourth quarter earnings on Monday February 14.

 

DBS Group Q4 earnings preview

DBS Group, the holding company for Singaporean outfit DBS Bank, has seen its shares more than double since hitting pandemic-induced lows back in March 2020 and, having climbed almost 13% since the start of 2022 alone, is currently trading at all-time highs.

The other two major banks in Singapore - Oversea-Chinese Banking Corp and United Oversea Bank - are also trading at all-time highs after rallying higher over the past 15 months.

This reflects an improving outlook for the banking industry. DBS delivered its three largest-ever quarterly profits during the first nine months of 2021 as income from its trading division hit new record highs, demand for loans continued to grow, and fee income reached new records thanks to growth across the board within wealth management, investment banking, transaction services and card spending.

That momentum is expected to have continued into the fourth quarter and early 2022 as economies bounce back from the pandemic. That should coincide with higher interest rates providing a boost to the industry’s earnings this year. DBS said in the last quarter that it was expecting two-and-a-half rate increases in 2022 but investors will be keen to see the outlook considering the US Federal Reserve, which influences central banks around the world, has become more hawkish since then. DBS has said that a one basis-point increase in rates will provide the company with a boost of SGD18 to SGD20 million in profits.

The reason central banks are looking to raise rates is rampant inflation and, while many central banks have described it as transitory, DBS believes there is more to it than that. The bank believes inflation will last longer than most but said that this will simply encourage more interest rate rises that should help it comfortably offset any increase in costs.

Investors can be confident that they can reap rewards from any uplift in profits in 2022 considering the industry is still ramping-up dividends back to pre-pandemic levels since the central bank removed the regulatory cap on distributions last July. DBS paid a dividend of SGD33 cents in the third quarter to take the nine-month payout to SGD84 cents, and this is expected to remain flat in the fourth to make an annual dividend of SGD1.18 in 2021, up from SGD0.87 in 2020 but below the SGD1.23 paid out in 2019. Notably, analysts believe quarterly payouts will start to rise, albeit mildly, from the first quarter of 2022.

DBS has already provided a glimpse into what to expect in 2022, although its view may have changed given how the economic picture has evolved in recent months. The bank said in the last quarter that it expected loan growth to slow to 6% to 7% in 2022 from the 9% to 10% pencilled-in for 2021. However, DBS said demand should still be some 5% above pre-pandemic levels.

DBS has seen costs rise at a faster pace than income in 2021 and the bank said it expected this trend to continue in 2022, but at narrower rate, which should allow it to deliver higher profit before allowances this year. However, there is a good chance the bank will beat this guidance considering it is on the assumption that no rate hikes will happen this year which, if they happen as expected, will improve the cost efficiency of the business.

Turning to the fourth-quarter earnings, analysts are expecting DBS to see net interest income rise over 10% from the year before to SGD2.33 billion and for the bank to report 9.8% growth in total income to SGD3.58 billion, according to consensus numbers from Bloomberg. That would mark the first year-on-year growth in six quarters for both metrics.

DBS is forecast to see its net interest margin improve to 1.59%, rising from 1.43% in the previous three-month period and also hitting its highest level in six quarters.

The rise in fees, strong loan growth and lower levels of provisions as the economic picture improves should feed through to a 43% jump in net profit in the quarter to SGD1.45 billion, although this will be the smallest quarterly profit delivered in 2021.

Elsewhere, expect commentary on its investments as it continues to digitally transform itself under a plan launched back in 2018, as well as the momentum behind its new trading service named Digital Exchange that has seen a significant uptick in volumes since going live 24/7.

DBS is also likely to shed some light on the traction being seen by its retail wealth arm, which has seem its assets under management rise by several billion dollars over the past year. Investors can also expect to hear more about the bank’s expansion into India, where it is rationalising its network, and China, where it has launched a consumer finance platform and a new securities joint venture.

Management are also likely to reiterate the catalyst its latest deal will provide over the longer-term, having announced last month that buying Citigroup’s consumer banking business in Taiwan. This is a major acquisition considering DBS said it will accelerate its strategy in the region by ‘at least 10 years’ and provide an immediate boost to EPS – although the deal is not expected to be completed until the middle of 2023, so this won’t come into play this year.

 

Where next for the D05 share price?

DBS shares have rallied over 40% in the past 12 months and its gains have only accelerated since the start of the new year, having pushed the stock to fresh all-time highs of SGD37 this week.

The latest uptrend started at the beginning of December and will push the stock to fresh record highs if it continues. However, we have seen a rising wedge formation form over the past three months that suggests a bearish reversal could emerge, supported by the fact the RSI has recently slipped into overbought territory. Rising volumes further reinforce this pattern, with average trading volumes having surpassed 5 million shares per day during the last 10 trading sessions compared to the 20-day average of 4.4 million and the 100-day average at 3.7 million.

If a reversal begins and pushes the stock out of the current wedge, then we could see shares fall back to the brief level of support seen late last month at SGD34.70. Beyond there, the moving averages come into play, first with the 50-day at SGD33.90 and then the 100-day at SGD32.50. Any move below the 200-day at SGD31.30 opens the door to the SGD29.90 floor hit at the end of November.

The DBS Group share price has climbed to fresh highs in 2022

 

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