Stocks market continue to fall, weighed down by rising geopolitical tensions. Previously, Fed Reserve official mentioned that the central bank will intends to continue to raise interest rate until the inflation is under control. As investors digested the news of interest rate increases, the stock market slowly improved. However, investors must be cautious that the stock market still remain volatile due to geopolitical tensions.
So, what are the stocks that could benefit from current situation?
Let us look into it together.
Background
DBS Group Holdings Ltd (DBS) was listed on the Singapore Exchange. DBS was set up by the Government of Singapore on 16 July 1968 to take over the industrial financing activities from the Economic Development Board. Today, DBS is one of the highest rated banking groups in Asia and their largest operations are in Singapore. The group has a proven earnings track record, and it is among the strongest banks regionally in liquidity, funding and capital metrics.
Business Model
DBS is an investment company, which provides retail, small and medium sized enterprise, corporate and investment banking services. It operates through the following business segments, such as consume banking / wealth management, institutional banking, treasury markets, and others.
The consumer banking / wealth management segment provides services including current and savings accounts, fixed deposits, loans and home finance, cards, payments, investment, and insurance products. The institutional banking segment offers financial services and products to institutional clients. The treasury markets segment deals with structuring, market-making, and trading across a broad range of treasury products. The other segments cover activities from corporate decisions and income, expenses that are not attributed to the business segments described.
First-half net profit at SGD 3.6bil, ROE at 13.3%
DBS Group achieved net profit of SGD 3.62 billion and return on equity of 13.3% for first-half 2022. Business momentum was broadly sustained in the first six months of the year while net interest margin rose after three years of decline. The gains were offset by lower wealth management fees due to weaker market conditions and a moderation in Treasury Markets income from the previous year’s high. As a result, total income was little changed and net profit declined 3% from the record a year ago.
DBS 2Q2022 results
DBS reported a 7% rose in 2Q2022 net profit Y-o-Y to SGD 1.82bil, driven by higher lending income though gains were offset by declines in wealth management and investment banking fees. It gave a robust outlook as Southeast Asia’s largest lender gains from sharply higher interest rates.
The group’s net interest income increased 12% on Q-o-Q and 17% on Y-o-Y to SGD 2.45bil, boosted by an accelerated expansion in net interest margin. Net interest income rose 12% from the previous quarter to SGD 2.45bil. Net interest margin rose 12bp during the quarter to 1.58%. The increase was faster than the three-basis-point rise in the previous quarter as the impact of interest rate hikes was more fully felt.
Loans grew 1% or SGD 6 billion to SGD 425 billion driven by trade loans and non-trade corporate loans. Housing loans and wealth management loans were little changed. Compared to a year ago, net interest income increased 17% as net interest margin rose 13 basis points and loans grew 7%.
However, the bank’s net fee income declined 14% from the previous quarter to SGD 768 million. Wealth management fees and investment banking fees were lower as market conditions further weakened during the quarter. Loan-related fees moderated from record levels. These declines were partially offset by a 9% increase in card fees. Transaction service fees were in line with recent quarters. Compared to a year ago, net fee income declined 12% as lower contributions from wealth management and investment banking more than offset increases in other fee activities.
Other non-interest income was SGD 570 million, 15% lower than the previous quarter and 10% below a year ago due to weaker market conditions. Expenses of SGD 1.66 billion were little changed from the previous quarter. Compared to a year ago, expenses rose 7% led by higher staff costs.
Balance Sheet
Asset quality continued to be resilient. The NPL ratio was stable at 1.3% over the six months as new non-performing asset formation remained low. First-half specific allowances amounted to SGD 236 million or 11 basis points of loans, compared to 18 basis points a year ago.
There was a general allowance write-back of SGD 135 million due to repayments and transfers to NPA. General allowance overlays built up in prior periods were maintained. Total allowance reserves amounted to SGD 6.69 billion, resulting in an allowance coverage of 113% and of 199% after considering collateral.
Liquidity was at a comfortable level. Deposits grew 5% or SGD 23 billion in constant-currency terms in the first half to SGD 528 billion. The loan-deposit ratio was little changed at 80%. Current and savings accounts accounted for 72% of customer deposits. The liquidity coverage ratio of 140% and the net stable funding ratio of 118% were both above regulatory requirements of 100%.
Capital continued to be healthy. The Common Equity Tier-1 ratio rose 0.2 percentage points from the previous quarter to 14.2%. The ratio remained above the group’s target operating range as well as regulatory requirements. The leverage ratio of 6.2% was more than twice the regulatory minimum of 3%.
The good news is DBS has declared a dividend of SGD 36 cents per share for the 2Q2022, higher than the SGD 33 cents a year ago. This brings first-half dividend to SGD 72 cents per shares.
Prospect
Fitch Rating stated that most Singaporean banks have strong domestic franchises, well-diversified business models and resilient financial performance through economic cycles. The economic recovery in Singapore across the banks’ key overseas markets should support broadly stable asset quality. Funding will remain a key strength given their large local deposit franchises.
On Mon (1 August 2022), DBS raised interest rates on its flagship Multiplier deposit account, in a first across the board move by a local bank to offer customers’ higher returns on their regular savings amid the rising interest rate environment. With the bank’s latest move, Multiplier customers can now earn a maximum of 3.5% per annum, up from 3% previously, for balances of over SGD 50,000 and up to SGD 100,000.
According to the CEO Piyush Gupta, DBS continues to deliver strong financial performance despite challenging financial market conditions. The group’s net interest margin rose for the first time in 3 years and accelerated in the 2Q2022, while business momentum and asset quality were sustained. While the macroeconomic outlook remains uncertain, the group will benefit from the rising interest rates and have proven nimble in capturing the business opportunities. The income growth will improve the cost income ratio in the coming quarters even as they judiciously invest for the future. Their ongoing stress tests indicate that asset quality continues to be robust.
Fundamental Analysis
Market Cap: SGD 83.4B
Number of Shares: 2.57B
PE Ratio: 12.48x
EPS (SGD): 2.59
Dividend Yield: 3.695%
Return on Equity: 12.1%
Net Earnings Growth: 44.5%
Technical Analysis
The chart is as of 4 August 2022.
Resistance Level: SGD 32.69
Support Level: SGD 30.91
Current Price: SGD 32.41
Assuming that if the share price of DBS can break through the price of SGD 32.69, it will turn into a bullish trend. In addition, there was a 3 days volume occurred from 2 Aug 2022 until 4 Aug 2022, indicating that there would be a chance if the resistance may be break through.
Currently, DBS is in a bullish trend as its MACD line continues to rise. Although RSI was stood at 69.9 points, it still showing a strong momentum. The stock price also stays above the MA20 and MA50 lines, indicating that the stock price would be in an uptrend in the short term and medium term. If the stock price could break through MA200, then its bullish trend will become stronger.
while RSI was at 62.62 still showing a strong momentum. However, its share price was above the MA20 and MA50, indicating that the stock price will continues to sustain in short-term and mid-term. If its share price can break through the MA200, then it may turn into bullish trend in a long-term.
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