SH5 can use both tga and dds. DDS is used as it offer's better compression for developers. (Although it can be at the expense of quality)
If you look through the directories you'll see a lot of reduntant tga files. All are availabe for modding purposes.
I have also found during testing if you want good quality dds compression you can in Photoshop use 32bit 8.8.8.8 compression instead of the usual 8bit dxt3/5 compression. I use this where I want no signs of banding e.g. Glass in dials and Periscope glass.
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