Finally, I have the chance to do my analysis on DBS bank! The one bank that is very big and well-known. As much as people will start questioning why I still want to do analysis when it is such an “obvious” stock to invest in, I will still do it. It is because I need to have my own conviction and hence, always do you own due diligence!
Company Overview
DBS bank is founded in 1968 as the Development Bank of Singapore (which honestly I didn’t know initially..). It has since grown to become the largest bank in Southeast Asia by assets. 56 years in, it has a presence in 19 markets globally. It definitely has a strong presence in Singapore, and a presence in 6 priority markets in Asia (including Singapore): Hong Kong, China, India, Indonesia, and Taiwan.
The markets where DBS is in (Asia):
- Singapore
- Bangladesh (Representative office)
- China
- Hong Kong
- India
- Indonesia
- Japan
- Korea
- Malaysia
- Myanmar (Representative office)
- Philippines (Representative office)
- Taiwan
- Thailand (Representative office)
- United Arab Emirates (UAE)
- Vietnam (both Main and Representative offices)
The markets where DBS is in (outside Asia):
- Australia
- United Kingdom
- United States of America
DBS also is the only Asian bank with a presence in the 3 key axes of growth:
- Southeast Asia
- Greater China
- South Asia
DBS seemingly continues to look for opportunities to expand its footprint in key Asian markets.
Overall, DBS is in 18 countries.
DBS seems to have its key businesses in:
- Consumer banking / Wealth management
- Institutional banking
- Treasury markets
DBS was helmed by Piyush Gupta since 2009, which probably is known by DBS investors well by now as over the last 15 years, DBS has undergone a transformation under him. However, Tan Su Shan is going to take over soon, and people will start to look forward to it. As much as there is this bit of uncertainty, the fact that DBS has existed for more than half a century and she is chosen by Piyush Gupta, we have to believe in his selection. As investors, we can only see the progress moving forward.
DBS’s board of directors: 10 members, 7 of whom are independent. This sounds alright to me as this means that more directors should be having a stronger degree of objectivity and independence, thinking more about shareholders too.
ESG-wise, I don’t typically look at them too deep as at this junction, all big companies are going to say they are striving for it. So yeah, every positive points here just add up a little bit for me. However, its ESG ratings are as follow:
- MSCI ESG Rating: AAA (highest rating)
- Sustainalytics ESG Risk Rating: 19.4 (Low risk)
DBS has a stable management team and strong corporate governance structure. The bank’s high ESG ratings reflect its commitment to sustainable business practices.
Financial Analysis
DBS has shown robust financial performance in recent years, with significant improvements in key metrics. The information from here on is taken from both DBS Annual Report 2023 and the recent 2Q 2024 report.
- Total Income: SGD 5,482 million in Q2 2024 (↑ 9% YoY, ↓ 1% QoQ)
- Net Profit: SGD 2,803 million in Q2 2024 (↑ 4% YoY, ↓ 5% QoQ)
- Return on Equity (ROE): 18.7% in 2023 (↑ from 15.7% in 2022)
- Net Interest Margin (NIM): 2.13% in 2023 (↑ from 2.09% in 2022)
- Cost-to-Income Ratio: 39% in Q2 2024 (↑ from 38% in Q2 2023)
- Earnings Per Share (annualised): SGD3.52 in 2023 (↑ from SGD2.86 in 2022) and TTM has been ↑ at about SGD3.87.
- Common Equity Tier 1 (CET1) Ratio: 14.8% in Q2 2024 (↑ slightly from 14.7% QoQ)
- Non-Performing Loan (NPL) Ratio: 1.1% (stable YoY and QoQ)
The bank’s financial metrics demonstrate strong profitability YoY although QoQ they might have dipped a bit. As much as the strong growth has been due to high interest rate as part of it, the QoQ dip could be a sign to pay attention to banking sector in the near future. However, in the long run, this doesn’t concern me much as DBS is a strong company with history. But one thing to take note is that due to Citi, their cost increased a bit. So I would like to see how this turns out in the short to mid term. But my favourite, is probably how stable the NPL ratio is.
The slight increase in CET1 ratio doesn’t seem much but is still worth monitoring but remains well above regulatory requirements.
What about its loans and deposits?
- Customer Loans: SGD 425 billion in Q2 2024 (↑ from SGD 416 billion in Q2 2023)
- Customer Deposits: SGD 551 billion in Q2 2024 (↑ 6% YoY, ↑ 2% HoH)
- Loan-to-Deposit Ratio: 77% in Q2 2024 (↓ from 80% in Q2 2023)
The growth in customer deposits outpacing loan growth indicates a strong liquidity position and provides a stable funding base for the bank. The decrease in the ratio shows it well.
So, how about its competitive advantages?
- Digital Leadership: 70% of retail customers are digitally engaged, with 82% of transactions conducted digitally. This is good as looking from today’s era, being able to be in the forefront of digitalization kind of put you in the advantage.
- Ecosystem Strategy: Partnerships with major tech companies and platforms. Naturally when partnering with major, big companies putting you in great exposure.
- Regional Presence: Strong market position in Singapore and growing presence in key Asian markets.
- Wealth Management: Assets Under Management of SGD 305 billion (↑ 14% YoY)
DBS’s digital capabilities and strong regional presence provide a significant competitive edge in the Asian banking landscape.
Business Highlights
Speaking from its business highlights, here are what i managed to get:
- Consumer Banking / Wealth Management
- Income: SGD 2,024 million (↑ 30% YoY)
- Assets Under Management: SGD 305 billion (↑ 14% YoY)
- Institutional Banking
- Income: SGD 2,082 million (↑ 4% YoY)
- Non-trade Corporate Loans: SGD 239 billion (↑ 2% YoY)
- Treasury Markets
- Income: SGD 409 million (↓ 15% YoY)
- Digital Transformation
- Digital customers: 4.8 million (↑ 9% YoY)
- Digital transactions: 82% of total transactions
I don’t really have a point for me to benchmark here, until I do analysis for the other banks, so the up arrow is looking good at the very least.
Other than that, I tried to think of its pros, cons and risks, and here they are.
Strengths
- Strong capital position and liquidity
- Leading digital banking capabilities
- Strong presence in wealth management
Weaknesses
- High reliance on Singapore market (as far as I see)
- Exposure to volatile financial markets
Opportunities
- Expansion in Greater Bay Area (China)
- Growth in wealth management segment
- Sustainable finance and ESG-related products
Threats
- Increasing competition from fintech companies (although I believe DBS has been following as well from the look of it)
- Economic uncertainties in key markets
- Regulatory changes and compliance costs
Risks
- Credit Risk: While the NPL ratio remains stable at 1.0%, potential economic slowdowns could impact asset quality
- Market Risk: Exposure to interest rate fluctuations and financial market volatility
- Operational Risk: Cybersecurity threats and technology disruptions
- Geopolitical Risk: Ongoing tensions affecting global trade and regional economies
Growth Prospects
- Continued investment in digital transformation
- Expansion of wealth management business, especially in Greater China
- Focus on sustainable finance and ESG-related products
- Cautious optimism on economic recovery in key markets
Valuation
- Price-to-Book Ratio: 1.41x (as of 2023 annual report)
- Dividend Yield: Interim dividend of SGD 0.48 per share in Q2 2024 (↑ from SGD 0.42 in Q2 2023). As of the share price of $36.6 per unit (as of 4 Sep 2024), the yield probably will fall around 5-6%.
Directors’ shares
Yes, after know what the company is about and its analysis, I like to look at the number of shares own by the higher-ups because this can give a sense of assurance a bit. After all, if they don’t believe in the company that they manage, why should you?
I have to admit that this looks better than the one I did for Keppel DC REIT where you can see dashes here and there.
Conclusion
Overall, the data and numbers that can be seen, definitely show it being a strong company. Even though it can be seen that there are some dips, but when looking at the bigger picture, the trend is generally still going up. Its revenue and net income in the past 5 years had been up, its cash in the past 5 years had been up, while its debt seems to be on averagely not too up but still coverable by cash in the past 5 years. However, one thing i noticed is that the big jump happened when the interest rate started to go up and there was a down period between 2020-2021.
ROE, if I take a look from 10 years ago, generally there is not much increase, but it has always been on the healthy to strong side. Last but not least, its total assets have been increasing.
On top of that, DBS has also obtained probably multiple awards, making it really recognisable among the customers.
Key risks to consider include potential economic slowdowns in its core markets, increasing competition from fintech companies, and ongoing geopolitical tensions affecting global trade. From the look of it, what can really affect it bigly could be from global events.
However, there is one more risk that I personally, as the user of DBS, would like to deem it as risk: the instability of its software or apps. In the recent months, due to the frequent crash or issue in which it rendered the apps unusable, MAS had to keep on “punishing” DBS for it. This is a concern to me. Hopefully they can make their software side more stable.
For investors seeking exposure to the Asian banking sector, DBS seems to offer a compelling mix of stability (has been existing for a while now), growth potential (due to evolving technology), and dividend income (has been pretty stable and relatively high). However, as with any investment, it’s crucial to consider your personal financial goals and risk tolerance before making an investment decision.
Disclaimer: Deddy is not a professional whatsoever. This article is only based on his limited research, effort and experience and should not be taken as a piece of advice. This article is also not an indication of buying or selling of any mentioned investment assets.
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