DBS Bank is a leading financial services group in Asia with a presence in 18 markets worldwide. As at 1 June 2019, DBS is valued at S$62.3 billion in market capitalisation. It is a major constituent of the Straits Times Index as DBS is one of the 30 largest companies listed on the SGX.
In this article, I will bring an update on its recent financial results and valuation figures. Here are 11 things to know about DBS Bank before you invest:
1. Loans and advances grew to S$345.0 billion in 2018, from S$323.1 billion in 2017. This was mainly contributed by growth in a few major segments such as manufacturing, building & construction, housing, and loans to financial institutions and investment & holding companies. Over the last 10 years, loans and advances has grown by a compound annual growth rate (CAGR) of 11.5% from S$130.0 billion in 2009.
2. Net interest income (NII) increased 14.9% to S$9.0 billion in 2018 from S$7.8 billion in 2017. This was mainly due to DBS’s net interest margin (NIM) increasing from 1.75% in 2017 to 1.85% in 2018 due a repricing of loans during the year. Over the last 10 years, NII has grown by a CAGR of 8.1% from S$4.5 billion in 2009.
3. Net fee and commission income increased 6.0% year-on-year to S$2.8 billion in 2018 from S$2.6 billion in 2017. This was mainly due to higher card fees and higher income from provision of wealth management services during the year. Over the last 10 years, Net fee and commission income has grown by a CAGR of 8.0% from S$1.4 billion in 2009.
4. Total income grew by 10.6% to S$13.2 billion in 2018 from S$11.9 billion in 2017. This was mainly due to a combination of higher NII and fees & commission income stated in 2018. Over the last 10 years, total income has grown by a CAGR of 8.0% from S$6.6 billion in 2009.
5. Shareholders’ earnings increased 27.6% to S$5.6 billion in 2018 from S$4.4 billion in 2017. Earnings outpaced growth in total income as DBS recorded lower allowances for credit and other losses in 2018 compared to the year before which was affected by residual exposure to the oil and gas industry. Over the last 10 years, earnings have grown by a CGAR of 11.8% from S$2.04 billion in 2009. DBS’s 10-year return on equity average is 10.3%.
6. As at 31 December 2018, DBS had a total capital ratio (TCR) of 16.9% and consolidated leverage ratio of 7.1%. These are above the 12.5% and 3.0% minimums required by the Monetary Authority of Singapore respectively. DBS Group Holdings has ‘AA-’ and ‘Aa2’ credit ratings by Fitch and Moody’s respectively and has been awarded ‘The Safest Bank in Asia’ by Global Finance for the past 10 consecutive years.
7. In March 2019, DBS launched its wholly-owned subsidiary DBS Bank India Ltd. DBS has been present in India for 25 years and intends to establish over 100 customer touchpoints in 25 cities over the next 12-18 months. As I write, DBS bank India has acquired around 2.5 million digital customers where 50% of them have a savings account with the bank. Moving ahead, DBS will focus on forging partnerships with companies such as BigBasket, the largest online grocery market in India; and Paisabazaar, the biggest loans and cards marketplace in India; and introduce digi Insurance and digi Loans to further expand its presence in India.
8. In November 2018, DBS announced its five-year expansion plan in the Middle East. DBS intends to make its Dubai office a strategic hub for Middle East clients who want to have access to the wider Asian market. Over the last seven years, DBS Private Bank has achieved an annual growth rate of 20% in total revenues and is aiming to triple its revenues over the next five years. The bank will focus on ultra-high net worth individuals, family offices, and sovereign wealth funds with whom DBS can offer bespoke investment products.
9. P/E ratio. DBS recorded S$2.15 in earnings per share in 2018. Therefore, based on its share price of S$24.39 (as at 9 June 2019), its current P/E ratio is 11.34. This is below its 10-year average of 12.01 from 2009 to 2018.
10. P/B ratio: As at 31 March 2019, DBS reported net assets of S$18.75 per share. Thus, it has a current P/B ratio of 1.30, which is above its 10-year average of 1.18 from 2009 to 2018.
11. Dividend yield: DBS has doubled its dividend in the last two years — it paid 60 cents in dividend per share in 2016 which has now grown to $1.20 in 2018. If DBS maintains its dividend, its yield is 4.9% based on its current share price.
The fifth perspective
DBS Bank has delivered a solid track record of growth in total income and shareholders’ earnings over the last 10 years. Although DBS is still trading near the top end of its P/B range over the last 10 years, its recent dip in share price and growth in dividend has seen its yield hit nearly 5%. For income investors looking for yield, DBS could prove to be an interesting option to consider.