DBS Group Holdings share price ready to hit $50?

What a fine performance! DBS Group Holdings share price looks set for another rally following the announcement of a solid Q1FY2019 financial performance. On 22 February 2019, I predicted that DBS Group Holdings share price would be on form because of the strong Net Interest Margin (NIM) performance. Since then, the counter surged from $25 to the current $28.

On the basis of the healthy business momentum, DBS Group Holdings share price is likely to continue its dazzling run, perhaps even reaching the $50 mark. Last year’s remarkable run of DBS Group Holdings share price was punctuated by the shock announcement of the tightening of Additional Buyer Stamp Duty (ABSD) and Loan-to-Value (LTV) ratio on residential property purchases. Nonetheless, it appears to me that DBS had managed to shake off the blues and resume its story.

Another reason for the bullish form of DBS Group Holdings share price is the reduction of allowances and non-performing assets (NPA). This is one major downside risk for DBS Group in recent years because of the ailing oil and gas sector. For Q1FY2019, the allowances was halved, dropping from $164million in Q1FY2018 to $76million FY2019. NPA also decreased from $5.8billion to $5.6billion.

Looking at the latest financial results, I could not find any fault with DBS Group Holdings’ performance. But what is surprising is that the management decided to put the icing on the cake by paying dividends four times a year, instead of two times. This would provide shareholders a regular income stream. Given the buoyant feeling, DBS Group Holdings share price is anticipated to go on a rampant bull run.

DBS Group Holdings share price on fire

In this blog, I have mentioned many times that DBS Group Holdings share price is very prone to volatility because of its sensitiveness to the revenue growth and ROE performance. As the leading light of SGX, big boys like to punt this counter. Thus, it is not prudent for investors to adopt a buy and hold strategy. A better approach should be hit-and-run. In life, don’t be too greedy.

CEO Piyush Gupta certainly knows how to make hay while the sun shines. Everyone knows that interest rates will not keep rising and that US Federal Reserves is keeping a tight lid on the interest rates to avoid inflation from climbing out of control. It seems that DBS is banking on this window of opportunity by focusing on loan growth. Loans grew 5% to $347 billion. The increase was led by non-trade corporate loans, which expanded 11%. Consumer loans were 3% higher.

More impressively, DBS is able to consistently increase its NIM from 1.83% in Q1FY18 to 1.88% in Q1FY19. As a result, net interest income increased 9% on annual basis to $2.3billion. DBS Group Holdings share price is given further boost as ROE rose to 14%, the highest in a decade.

Return on Equity (ROE)

Return on Equity (ROE) rose to 14% for Q1FY2019. In recent years, the ROE has been climbing because of increasing dividends. ROE is defined by returns divided by equity. Equity is asset minus liabilities. As dividends increased, the assets will decrease. Thus, the decreasing denominator will lead to higher ROE.

As Temasek Holdings is a major share-holder of DBS, Piyush Gupta obviously needs to report to the board of Temasek Holdings for his performance. One of the key metrics for judging management performance is the ROE. And increasing dividends is a means of increasing ROE.

The increasing ROE, coupled with increasing dividends, is likely to turbocharge DBS Group Holdings share price in the coming months. Probably because of the rising ROE, DBS had since stopped buying back shares since 13 November 2018.

Big boys’ movements

The big boys had [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]

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