DBS may declare a special dividend of S$0.50 a share for the fourth quarter of FY2024 as well as raise its ordinary dividend per share to S$0.60, said CGS International in a report on Tuesday (Jan 14).
Reiterating its “hold” call on the bank, the securities company maintained its target price at S$43, which is 1.1 per cent below its latest closing price of S$43.50 for Wednesday.
This comes as CGS International analysts Andrea Choong and Lim Siew Khee predict “modest earnings” for DBS in Q4 FY2024 amid softer business activity across Singapore banks during the year-end season.
“We believe Q4 FY2024 earnings were seasonally softer across Singapore banks as business activity decreased amid heightened leisure travel and year-end festivities,” said Choong and Lim in a Monday (Jan 13) report.
However, they maintain a “hold” call on DBS as they are optimistic about its FY2025 outlook, citing upside risks of stronger treasury income and wealth management fees. “We believe investors have priced in the positive outlook for net interest margin (NIM) and wealth management in FY2025,” they noted.
Modest profit
With the trio of Singapore banks – DBS, UOB, and OCBC – set to declare final dividends in Q4 FY2024, Choong and Lim think that DBS will raise its ordinary dividend to S$0.60 a share from the quarter onwards.
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“DBS estimates S$6 billion in transitory excess capital; S$2 billion will be used redeem its additional tier-1 capital securities, with the rest available for shareholder return,” they explained.
Choong and Lim said that DBS will turn a modest net profit of S$2.7 billion for Q4 FY2024 – an 11 per cent quarter-on-quarter (qoq) decline and a 13 per cent year-on-year improvement.
“While we see some benefit from the stronger US dollar in Q4 FY2024, overall loan growth should have stayed soft amid sluggish corporate demand,” they said. The full year’s loan growth will likely come in at the bank’s guided low-single digit range, they added.
In line with “dampened” fee momentum, wealth management income is anticipated to retreat despite showing strong momentum in preceding quarters, said Choong and Lim. This comes as the segment is likely to record slower earnings for the quarter due to “seasonal factors”, they felt.
In the same vein, softer treasury income is to be expected.
However, net interest margin (NIM) for the quarter is expected to remain relatively stable and record qoq growth, said Choong and Lim. “We think NIM stayed rather stable in Q4 FY2024 despite the 50 basis point US Fed rate cut in November and December, as its effects may be more noticeable only in Q1 to Q2 FY2025 when it takes effect in both asset yields and funding costs,” they pointed out.
With the bank’s exit NIM of 2.15 per cent for Q3 FY2024 – which stands above its NIM of 2.11 per cent for the quarter – sustaining into October 2024, they predict that NIM for Q4 will lift from the previous quarter to 2.13 per cent.
Credit costs are estimated to be “benign” in line with the bank’s FY2024 guidance, they added.
Given that DBS has a fixed-rate asset book of S$190 billion, of which S$50 billion will mature in FY2025, the bank can expect to see some “yield pick up” in the quarters to come, Choong and Lim said.
