Asia Tea Time - Cup 54 ☕

This week I talk another record quarter from DBS, how to (legally) avoid taxes on your investments and the scorching heat in Southeast Asia.

Macro in Asia

DBS Group posts yet another record quarter in profits

Singapore’s largest bank, DBS Group, saw its net profit rise 15% year-on-year in the first quarter of 2024 – hitting a record high of S$2.96 billion.

This completely blew away market expectations, with investors having braced for the bank to post S$2.48 billion in net profit.

Why it’s happening

• Interest rates are staying “higher for longer” and that is benefitting banks that have scale, like DBS.

• The bank has been super efficient in controlling its costs while also being able to grow its fees from the wealth management and credit card units.

Why it matters

• Being Singapore’s biggest bank, and also the country’s largest stock by market value, it’s a bellwether for the rest of the banking sector.

• The record results also pushed the stock to a record market capitalisation of over S$100 billion – the first Singapore-listed company to hit that milestone.

What’s next?

• Singapore’s second- and third-biggest banks (OCBC and UOB) will be reporting in the next few weeks so investors will be keen to see whether they hit the same highs as DBS.

Tim’s Take 

It was a blockbuster week for Singapore’s largest company and it was no surprise to see why.

Hitting that S$100 billion market cap landmark while also posting a record-high quarterly profit was the culmination of a strong period for the bank. 

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Indeed, during the first quarter of 2024 DBS recorded Return on Equity (ROE) – a measure of how effectively profit is generated from shareholders’ equity – of 19.4%. That was a record high for the bank.

It’s also a remarkable number given most solid banks globally post ROEs in the mid-teens. Even the largest bank in the world and one of the most respected globally – JPMorgan Chase – posted ROE of 17% in its latest Q1 2024 earnings.

That just highlights how strong DBS has been in generating value for shareholders. A cost-income ratio of just 37% in Q1 2024 also illustrated how efficient the bank has been at controlling its cost base. 

Loan growth for the bank was better than expected and the market also took confidence from an upbeat tone from DBS management, particularly guiding for net profit this year to be above 2023’s record level.

Most Singapore investors who hold DBS stock will just be happy the bank is yielding around 6.7% right now with a S$0.54 per quarter dividend payout.

After having recently paid out a 1-for-10 share bonus issue, DBS stock is flying high. Whether it can keep the momentum going if interest rates start to come down is another question.

But for now, the bank’s solid dividend yield should keep income investors interested in its shareholder-friendly policies. 

Tim’s money tip of the week

Focusing on tax when investing is never fun. But when we talk about tax on stock dividends or bond coupons then it’s something we should just be aware of.

For instance, if you own any dividend-paying stocks or exchange-traded funds (ETFs) listed and domiciled in the US, you will automatically get hit with a 30% dividend withholding tax.

One of the best ways to get around this, at least when investing in ETFs, is to buy ETFs listed in London.

These are known as undertaking for collective investment in transferable securities (UCITs) ETFs.

They’re domiciled in Ireland and the stock versions of these ETFs only pay a 15% dividend withholding tax.

Even better, if you buy bond UCITs ETFs listed in London, you will pay no tax whatsoever on bond coupon payments that you receive. 

So, if you’re in that stage of life where bonds matter, then investing through bond UCITS ETFs listed in London could be a very tax-efficient way to get your income.

Story of the week

It’s been an absolutely sweltering week in Southeast Asia, with many countries seeing some record temperatures.

The El Nino weather phenomenon is taking some of the blame but climate change is real, people. 

Indeed, Singapore is warming up at twice the rate of the rest of the world. Stay cool out there.