Is DBS A Buy After Its Q1 25 Earnings Results?

🌟🌟🌟DBS $DBS Group Holdings(D05.SI)$  has just announced its Q 1 25 on Thursday and it is the first report by the new CEO Tan Su Shan.

DBS achieved a record profit before tax of SGD 3.44 billion in Q1 25, slightly higher than a year ago as total income reached a new high from robust business growth.  Net profit was 2% lower at SGD 2.90 billion due to higher tax expenses from the implementation of the 15% global minimum tax.

Total income rose 6% to SGD 5.91 billion from balance sheet growth, record fee income and treasury customer sales.  This was driven by wealth management as well as the strongest markets trading income in 12 quarters.  The cost income ratio was stable at 37%.  Asset quality was resilient with the NPL at 1.1% and specific allowance at 10 basis points of loans.

Compared to previous quarter, net profit was 10% higher.  Group net interest income rose 1% from balance sheet growth, while non interest income grew 25% driven by higher fees, treasury customer sales and markets trading.  Expenses fell 8% partly due to non recurring items in the previous quarter while specific allowances were halved.

The Board declared an ordinary dividend of SGD 60 cents per share and a Capital Return Dividend of SGD 15 cents per share for the 1st quarter.

DBS reported a Common Equity Tier-1 ratio of 17.4%.  The leverage ratio of 6.5% was more than twice the regulatory minimum of 3%.

Year on Year performance 

Commercial book net interest income rose 2% as a 9 basis point decline in net interest margin was more than offset by balance sheet growth.  Loans grew 3% led by non trade corporate loans while deposits were 6% higher.

Net fee income increased 22% as wealth management fees grew 35% from strong market sentiment and higher assets under management, while loan related fees rose 23% with increased activity.

Commercial book  non interest income was 12% lower.  The decline was driven by non recurring items while Treasury customer sales grew 11% to a record high. 

Markets trading income increased 48%, partly reflecting lower funding costs.

Expenses rose 6% from higher staff costs.  The cost to income ratio was stable at 37%.

Profit before allowances increased by 6%.

According to CEO Tan Su Shan, DBS had a strong start to the year with broad based business growth led by wealth management and ROE above 17% despite the impact of the global minimum tax.  Recent escalations in trade tensions have heightened macroeconomic risks and market volatility.  However DBS will stay nimble to capture opportunities while prudently managing risks.  DBS have strengthened its general allowance reserves and together with its strong capital and liquidity positions, have a strong foundation  to continue supporting customers.

Why DBS could be a Buy?

1.  Beat Expectations Amid Uncertainty:

Even with the 2% drop in net profit,   DBS exceeded Analysts consensus estimates.  This is a  sign that DBS underlying business remains robust despite external challenges such as trade tensions and tariff uncertainties.  The record profit before tax indicates that the bank's operations are generating strong income, which bodes well for future performance.

2.  Diversified Income and Strong Fundamentals :

DBS' income is not overly reliant on one segment.  It benefits from a diverse range of revenue streams that include commercial loans, wealth management fees and trading income.  This diversification alongside cost management, helps cushion the impact of external economic pressures.

3.  Resilience in a Low Growth Environment :

With macroeconomic headwinds, including a modest headroom for boosting growth in some regions, DBS's steady performance and focus on prudent risk management provide a safeguard.  Its ability to maintain a relatively high ROE in a challenging environment is attractive to long term investors like me.

4.  Attractive Valuation and Dividend Yield :

Given its market leading position in South East Asia and its resilient performance, DBS is regarded as great value for investors seeking both growth and income.  DBS's commitment to great dividend payouts reinforces its appeal.

Points of Caution 

Macroeconomic Risks:

The heightened geopolitical and trade uncertainties, made worse by tariff related pressures, pose risks to loan growth and overall market sentiment.  If these uncertainties persist or worsen, it might put pressure on growth and profit margins. 

NIM Pressures:

With interests margins already in a narrow range, any further drops on net interest margin could affect profitability.  However DBS's diversified income may help to mitigate the  risk over time.

Earnings Guidance and Future Outlook :

While Q1 25 results have been solid, investors should keep an eye on guidance for the remainder of 2025, especially as global economic conditions continue to evolve.  Some caution  is warranted if the macro environment worsens. 

My Investment in DBS 

I have been a long term investor of DBS since 2022 and it has rewarded me with both capital gains and nice juicy dividends.  I believe that DBS will continue to do well as its diversified revenue streams, prudent risk management will allow it to navigate through tough macro economic conditions.

It is exciting times ahead for DBS, with its new CEO Tan Su Shan.  New management, better performance, hopefully to reach SGD 50 per share soon.

Go Long Go Strong Go DBS! 🚀🚀🙏🌛🌛🌈🌈🌈💰💰💰🇸🇬🇸🇬🇸🇬

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