CGS International covering the report.
May 9, 2025
DBS Group: Confident Outlook and Enhanced Capital Returns Drive Upgrade
Key Takeaways
DBS Group reaffirmed its FY25F guidance for flat year-on-year Profit Before Tax (PBT) despite a backdrop of rising global economic uncertainty. The bank’s management overlay of approximately S\$2.6bn within its S\$4.16bn General Provisions (GPs) as of end-1Q25 is deemed sufficient to handle potential stress scenarios. Furthermore, DBS’s excess capital position, estimated at around S\$7.73bn in 1Q25, is expected to support a more substantial and sustainable capital return policy between FY25-27F. This has led to an upgrade in recommendation to Add with a higher target price of S\$47.90, driven by improved yield attractiveness and a projected lift in long-term Return on Equity (ROE).
DBS Group: Navigating Uncertainty with Confident Guidance
During the analyst briefing on May 8, 2025, DBS management expressed confidence in maintaining flat year-on-year PBT for FY25F. This outlook persists even as global economic uncertainty increases.
Fee Income and Loan Growth Outlook
Net fee and commission income, particularly from wealth management and loan-related fees, reached a record high in 1Q25. This robust performance continued into April, supported by healthy net new money inflows (S\$3bn in 1Q25) for the wealth franchise and a strong pipeline for non-trade corporate loans (3% quarter-on-quarter in 1Q25). However, management acknowledged that potential spillover effects from trade tensions between the US and its trading partners could temper growth in the second half of 2025.
Asset Quality and Provisions
The S\$205m GP recognition in 1Q25 was highlighted as a result of prudence in light of the uncertain economic outlook, rather than a deterioration in asset quality. Total GPs stood at S\$4.16bn, including a significant management overlay of approximately S\$2.6bn above the current macroeconomic variable (MEV) requirements. Management indicated the possibility of a write-back in GPs if credit quality improves. Consequently, total credit costs for FY25F are expected to remain within the guided range of 17-20 basis points.
Excess Capital and Capital Return Initiatives
DBS’s fully phased-in CET-1 ratio of 15.2% as of 1Q25 demonstrates an excess capital position that can sustainably support announced capital return initiatives for FY25-27F. These initiatives include a S\$3bn share buyback program over the three-year period and a quarterly capital return Dividend Per Share (DPS) of S\$0.15 across FY25-27F, contingent on achieving an ROE between 15-17%. The bank has consistently maintained quarterly ROE between 15.8-19.4% since 3Q22. The S\$3bn share buyback is projected to further enhance long-term ROE by 0.5 percentage points.
An illustration of DBS’s excess capital position:
| Unit |
1Q25 Value |
Remarks |
| Risk-weighted assets (RWA) |
S\$m 351,537 |
|
| CET-1 capital adequacy ratio (fully phased-in) |
% 15.2% |
|
| Common Equity Tier 1 (CET-1) (fully phased-in) |
S\$m 53,434 |
|
| Optimal CET-1 ratio Upper bound |
% 13.5% |
|
| Excess capital – Upper |
S\$m 5,976 |
|
| Optimal CET-1 ratio Lower bound |
% 12.5% |
|
| Excess capital – Lower |
S\$m 9,491 |
|
| Mid-point – (a) |
S\$m 7,734 |
|
| Share buyback – (b) |
S\$m 3,000 |
Estimated duration: 3 years i.e. FY25F-FY27F |
| FY25F Capital Return dividend |
S\$ 0.60 |
|
| Shares outstanding |
m 2,890 |
|
| FY25F Capital Return dividend payout – (c) |
S\$m 1,734 |
|
| Remaining excess CET-1 capital – (a) – (b) – (c) |
S\$m 3,000 |
|
| On a per share basis |
S\$ 1.04 |
|
Based on estimates, DBS can support its committed FY25F capital return dividend of S\$0.60 per annum for FY26-27F, potentially translating to an attractive dividend yield exceeding 7% through FY27F. The annual dividends for DBS have been as follows:
- Dec-23A: S\$1.92
- Dec-24A: S\$2.22
- Dec-25F: S\$3.06
- Dec-26F: S\$3.30
- Dec-27F: S\$3.54
Upgrade to Add, Target Price Lifted
The recommendation for DBS Group is upgraded to Add from Hold, with the target price increased to S\$47.90. This upgrade is primarily driven by the expectation of sustainable higher ROEs. While 1Q25 net profit of S\$2.90bn represented 25.9% of FY25F estimates, estimates remain unchanged due to the seasonal strength typically seen in the first quarter. The Gordon Growth Model (GGM) valuation now incorporates a higher ROE assumption of 18.0%, up from 16.5%, reflecting sustainable ROE improvement from core earnings growth and the impact of capital return initiatives.
GGM Valuation Details:
| Metric |
Value |
| COE |
10.1% |
| Sustainable ROE |
18.0% |
| LTG |
2.0% |
| (ROE-LTG) – [a] |
16.0% |
| (COE – LTG) – [b] |
8.1% |
| Target P/BV (x) – [a]/[b] |
1.98 |
| FY25F BV (S\$) |
24.25 |
| Target price (S\$) |
47.90 |
Key changes in the note include raising the ROE assumption for the GGM valuation model from 16.0% to 18.0% to account for the sustainable ROE improvement and capital return impact.
Re-rating Catalysts and Downside Risks
Potential re-rating catalysts include continued income growth translating to year-on-year net profit growth in FY25F despite a higher effective tax rate, and better markets trading income stemming from increased volatility. Downside risks include more drastic-than-expected US Fed Funds rate cuts and the retraction of capital management initiatives.
Current price: S\$43.09
Target price: S\$47.90
Previous target: S\$43.10
Up/downside: 11.2%
Consensus ratings*: Buy 10, Hold 9, Sell 0
*Source: Bloomberg
Key Financial Summary for DBS Group (S\$m):
| Metric |
Dec-23A |
Dec-24A |
Dec-25F |
Dec-26F |
Dec-27F |
| Net Interest Income |
13,642 |
14,424 |
14,642 |
14,681 |
14,768 |
| Total Non-Interest Income |
6,520 |
7,873 |
8,198 |
8,792 |
9,434 |
| Operating Revenue |
20,162 |
22,297 |
22,840 |
23,473 |
24,202 |
| Total Provision Charges |
(590.0) |
(622.0) |
(803.2) |
(840.0) |
(881.2) |
| Net Profit |
10,286 |
11,408 |
11,264 |
11,350 |
11,494 |
| Core EPS (S\$) |
3.99 |
4.02 |
3.97 |
4.00 |
4.05 |
| Core EPS Growth |
25.2% |
0.7% |
(1.3%) |
0.8% |
1.3% |
| FD Core P/E (x) |
10.80 |
10.73 |
10.86 |
10.78 |
10.65 |
| DPS (S\$) |
1.92 |
2.22 |
3.06 |
3.30 |
3.54 |
| Dividend Yield |
4.46% |
5.15% |
7.10% |
7.66% |
8.22% |
| BVPS (S\$) |
23.14 |
23.38 |
24.25 |
24.91 |
25.38 |
| P/BV (x) |
1.86 |
1.84 |
1.78 |
1.73 |
1.70 |
| ROE |
18.0% |
18.1% |
16.7% |
16.3% |
16.1% |
| % Change In Core EPS Estimates |
0% |
0% |
0% |
|
|
| EPS/Consensus EPS (x) |
1.03 |
1.02 |
0.99 |
|
|
Key Drivers for DBS Group:
| Metric |
Dec-23A |
Dec-24A |
Dec-25F |
Dec-26F |
Dec-27F |
| NIM (%) |
2.2% |
2.1% |
2.1% |
2.1% |
2.0% |
| Cost-to-income ratio (%) |
41.1% |
40.4% |
40.0% |
41.1% |
42.1% |
| Loan growth (%) |
0.4% |
3.5% |
4.5% |
4.8% |
5.0% |
| Deposit growth (%) |
1.5% |
5.0% |
5.0% |
5.0% |
5.0% |
| Loans-to-deposits ratio (%) |
77.8% |
76.7% |
76.3% |
76.2% |
76.2% |
| CASA ratio (%) |
53.4% |
51.8% |
N/A |
N/A |
N/A |
| Credit cost (bp) |
14.0 |
14.5 |
18.0 |
18.0 |
18.0 |
Key Abbreviations Used:
| Abbreviations |
Represents |
| NII |
Net interest income |
| NIM |
Net interest margin |
| Non-II |
Non-interest income |
| CASA |
Current account/savings account |
| SORA |
Singapore Overnight Rate Average |
| LDR |
Loan-to-deposit ratio |
| SP |
Specific provisions |
| GP |
General provisions |
| CET-1 |
Common equity tier 1 |
Sector Comparison (Data as of 8 May 2025)
The report provides a comparison of various banks across Singapore, Indonesia, Malaysia, and Thailand, outlining their recommendations, market data, and key financial metrics.
| Company |
Bbg Ticker |
Recom. |
Price (local) |
Tgt Price (local) |
Mkt Cap (US\$ m) |
3-year EPS CAGR (%) |
P/BV (x) CY25F |
P/BV (x) CY26F |
P/BV (x) CY27F |
Recurr. ROE (%) CY25F |
Recurr. ROE (%) CY26F |
Recurr. ROE (%) CY27F |
P/PPOPS (x) CY25F |
P/PPOPS (x) CY26F |
P/PPOPS (x) CY27F |
Div Yield (%) CY25F |
Div Yield (%) CY26F |
Div Yield (%) CY27F |
| DBS Group |
DBS SP |
Add |
43.09 |
47.90 |
94,403 |
1.3% |
1.78 |
1.73 |
1.70 |
16.2% |
16.3% |
16.1% |
8.9 |
8.9 |
8.7 |
7.1% |
7.7% |
8.2% |
| OCBC |
OCBC SP |
Hold |
16.16 |
17.20 |
56,083 |
2.5% |
1.23 |
1.18 |
1.11 |
12.6% |
12.8% |
12.5% |
8.6 |
8.3 |
8.0 |
6.5% |
6.7% |
5.9% |
| United Overseas Bank |
UOB SP |
Add |
34.55 |
38.60 |
44,527 |
5.7% |
1.12 |
1.06 |
0.99 |
11.5% |
12.6% |
12.6% |
7.0 |
6.5 |
6.2 |
7.2% |
6.1% |
6.4% |
| Singapore average |
|
|
|
|
|
2.8% |
1.41 |
1.35 |
1.29 |
13.7% |
14.0% |
13.9% |
8.3 |
8.0 |
7.8 |
6.9% |
7.0% |
7.1% |
| Bank Central Asia |
BBCA IJ |
Add |
8,975 |
12,350 |
67,046 |
6.3% |
3.92 |
3.60 |
3.31 |
21.7% |
21.4% |
21.3% |
14.6 |
13.5 |
12.4 |
3.4% |
3.7% |
4.0% |
| Bank Jago |
ARTO IJ |
Add |
1,880 |
3,000 |
1,579 |
na |
2.96 |
2.80 |
na |
4.2% |
7.3% |
na |
24.8 |
14.4 |
na |
0.2% |
0.6% |
na |
| Bank Mandiri |
BMRI IJ |
Add |
4,790 |
6,500 |
27,092 |
7.9% |
1.46 |
1.33 |
1.21 |
19.2% |
19.5% |
19.9% |
4.5 |
4.1 |
3.7 |
7.6% |
8.4% |
9.4% |
| Bank Rakyat Indonesia |
BBRI IJ |
Add |
3,790 |
4,900 |
34,808 |
5.8% |
1.73 |
1.65 |
1.57 |
17.7% |
19.4% |
20.5% |
4.8 |
4.5 |
4.0 |
8.5% |
9.8% |
10.8% |
| Bank Tabungan Negara |
BBTN IJ |
Add |
1,160 |
1,250 |
986.5 |
7.7% |
0.47 |
0.44 |
0.41 |
9.5% |
9.6% |
9.8% |
1.9 |
1.8 |
1.6 |
4.9% |
5.3% |
5.8% |
| Bank Tabungan Pensiunan Nasional Syariah |
BTPS IJ |
Add |
1,240 |
1,500 |
578.9 |
17.9% |
0.92 |
0.85 |
0.78 |
13.3% |
14.4% |
14.8% |
3.6 |
3.2 |
3.0 |
2.8% |
6.9% |
8.1% |
| Indonesia average |
|
|
|
|
|
na |
2.19 |
2.04 |
na |
18.8% |
19.5% |
na |
7.0 |
6.4 |
na |
5.7% |
6.3% |
na |
| Affin Bank Berhad |
ABANK MK |
Reduce |
2.60 |
2.76 |
1,539 |
7.2% |
0.53 |
0.51 |
0.50 |
4.4% |
4.6% |
5.0% |
8.0 |
7.2 |
6.7 |
3.3% |
3.6% |
3.9% |
| Alliance Bank Malaysia Berhad |
ABMB MK |
Hold |
4.40 |
5.27 |
1,591 |
8.5% |
0.83 |
0.79 |
0.75 |
10.2% |
10.4% |
10.1% |
5.4 |
5.1 |
5.0 |
6.0% |
6.4% |
6.6% |
| AMMB Holdings |
AMM MK |
Add |
5.30 |
6.39 |
4,091 |
8.1% |
0.81 |
0.76 |
0.72 |
9.7% |
10.0% |
10.0% |
6.3 |
5.6 |
5.4 |
4.7% |
5.1% |
5.4% |
| Bank Islam Malaysia Bhd |
BIMB MK |
Add |
2.43 |
3.13 |
1,287 |
8.6% |
0.68 |
0.66 |
0.63 |
7.9% |
8.1% |
8.3% |
5.2 |
4.8 |
4.6 |
6.8% |
7.2% |
7.8% |
| Hong Leong Bank |
HLBK MK |
Add |
19.94 |
31.40 |
10,098 |
8.3% |
1.05 |
0.98 |
0.91 |
11.3% |
11.4% |
11.4% |
11.3 |
10.7 |
9.9 |
4.2% |
4.5% |
4.9% |
| Malayan Banking Bhd |
MAY MK |
Add |
9.88 |
12.80 |
27,884 |
6.8% |
1.10 |
1.04 |
0.97 |
10.7% |
10.2% |
10.0% |
7.8 |
7.1 |
6.9 |
6.5% |
6.8% |
7.1% |
| Public Bank Bhd |
PBK MK |
Add |
4.45 |
5.81 |
20,179 |
6.6% |
1.37 |
1.30 |
1.23 |
12.3% |
12.2% |
12.3% |
8.7 |
8.0 |
7.7 |
5.2% |
5.5% |
5.8% |
| RHB Bank Bhd |
RHBBANK MK |
Add |
6.67 |
7.25 |
6,793 |
8.5% |
0.85 |
0.80 |
0.76 |
9.6% |
10.3% |
10.5% |
6.1 |
5.5 |
5.1 |
6.7% |
7.5% |
8.0% |
| Malaysia average |
|
|
|
|
|
7.4% |
1.06 |
1.00 |
0.94 |
10.6% |
10.5% |
10.5% |
7.9 |
7.3 |
6.9 |
5.7% |
6.0% |
6.4% |
| Bangkok Bank |
BBL TB |
Add |
143.0 |
170.0 |
8,326 |
3.6% |
0.47 |
0.45 |
0.43 |
7.4% |
7.3% |
7.6% |
3.1 |
3.1 |
3.0 |
6.2% |
6.4% |
6.9% |
| Kasikornbank |
KBANK TB |
Add |
165.0 |
184.0 |
11,925 |
6.0% |
0.67 |
0.64 |
0.61 |
7.4% |
8.3% |
8.8% |
3.9 |
3.7 |
3.5 |
5.5% |
6.4% |
7.0% |
| Kiatnakin Phatra Bank |
KKP TB |
Hold |
47.00 |
52.00 |
1,187 |
9.0% |
0.61 |
0.58 |
0.56 |
7.4% |
7.8% |
8.8% |
3.7 |
3.7 |
3.4 |
6.1% |
6.6% |
7.7% |
| Krung Thai Bank |
KTB TB |
Add |
22.50 |
25.00 |
9,592 |
2.5% |
0.68 |
0.65 |
0.62 |
8.0% |
8.7% |
9.0% |
3.8 |
3.6 |
3.5 |
5.7% |
6.4% |
7.0% |
| Muangthai Capital |
MTC TB |
Add |
43.50 |
54.00 |
2,813 |
22.1% |
2.12 |
1.79 |
1.52 |
17.2% |
17.9% |
17.7% |
6.8 |
5.8 |
5.1 |
0.8% |
0.9% |
1.1% |
| SCB X |
SCB TB |
Add |
120.5 |
130.0 |
12,376 |
4.5% |
0.82 |
0.80 |
0.79 |
8.3% |
8.5% |
9.3% |
4.3 |
4.2 |
4.0 |
8.1% |
8.4% |
9.4% |
| Srisawad Corporation |
SAWAD TB |
Hold |
26.00 |
34.00 |
1,318 |
5.3% |
1.13 |
1.03 |
0.91 |
13.2% |
13.6% |
14.7% |
4.8 |
4.4 |
3.9 |
3.8% |
3.8% |
3.8% |
| Tisco Financial Group |
TISCO TB |
Hold |
98.25 |
99.00 |
2,400 |
0.3% |
1.79 |
1.75 |
1.71 |
14.7% |
14.6% |
14.4% |
7.8 |
7.5 |
7.4 |
7.0% |
7.0% |
7.0% |
| TMBThanachart Bank |
TTB TB |
Hold |
1.88 |
1.86 |
5,540 |
2.2% |
0.74 |
0.72 |
0.70 |
8.4% |
8.0% |
8.3% |
5.1 |
5.1 |
4.9 |
7.3% |
7.1% |
7.6% |
| Thailand average |
|
|
|
|
|
4.7% |
0.71 |
0.68 |
0.65 |
8.1% |
8.5% |
9.0% |
4.1 |
3.9 |
3.8 |
6.2% |
6.6% |
7.2% |
ESG Profile and Implications
DBS Group’s commitment to Environmental, Social, and Governance (ESG) factors is highlighted, based on LSEG ESG scores.
LSEG ESG Scores
In 2024, DBS received a B- for its ESG Combined Score from LSEG. Excluding environmental controversies, the bank scored an A in FY23, positioning it among the best-in-class in Singapore. DBS is noted for its progressive contributions to developing best practices in specific sectors through its Responsible Financing Standard, which is expected to be continuously refined.
Sustainable Finance Commitments
DBS has reiterated a sustainable financing target of S\$50bn by 2024F and committed to achieving zero thermal coal exposure by 2039F.
Environmental Controversies
DBS has faced scrutiny regarding environmental controversies related to the financing of palm oil plantations, linked to deforestation. While these controversies are long-standing, DBS acknowledges its role in promoting a more sustainable palm oil sector. New clients are required to align with its No Deforestation, No Peat, and No Exploitation (NDPE) policies. These controversies are not currently factored into valuations, but prolonged misalignment with responsible financing practices could pose a long-term drag on the stock.
ESG Highlights and Trends
- Excluding controversies, DBS’s A- ESG score is considered best-in-class in Singapore, ranking it at the upper end compared to sector peers.
- The bank has proactively improved its ESG scores across each pillar over FY16-24, demonstrating a commitment to progress.
- This ESG progress and prominence are seen as potential key differentiating factors for discerning investors over time.
- Adherence to the Responsible Financing Standard, advancement towards sustainable finance targets, and the zero thermal coal commitment are viewed as potential supports for future re-rating cycles.
- Despite overall improvements, the ESG Controversies score dipped to D+ in FY24 from B in FY20.
- Recovering and managing the environmental controversy is considered key to further improving the bank’s overall scores.
