DBS share price attempts comeback as volatility subsides

Singapore’s most valuable company has seen its share price climb over 11% since the government announced a slew of fiscal measures in early April.

DBS Group's securities are inching toward the S$20 per share price level once again, with shares trading at S$19.97 - a one-month high - as at 14:00 SGT on 14 April 2020.

Shares of Singapore’s largest money lender have risen over 11% since 03 April, a week that saw stocks dipping under S$18 apiece.

Government fiscal measures provide relief to Singapore firms

This latest rally has coincided with the Singapore government’s third and latest stimulus package announced on 06 April 2020 that included a slew of financial assistance measures aimed at helping local businesses of all sizes tide over this tumultuous period.

It also comes on the back of further banking sector-specific fiscal measures unveiled by the Monetary Authority of Singapore (MAS) announced a day after the national budget aimed at helping financial institutions to focus on dealing with issues related to the Covid-19 pandemic and supporting their customers during this time.

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As part of the measures, Singapore financial companies will be allowed to adjust their capital and liquidity requirements to help sustain lending activities; set more realistic accounting loan loss allowances by taking into account the government’s latest fiscal assistance and banks’ relief measures; as well as defer implementation of the final set of Basel III reforms, margin requirements for non-centrally cleared derivatives, and other new regulations and policies, to ease operational burdens.

Singapore’s central bank also said in the same announcement that it does not see a need to restrict banks’ dividend policies, though the release of capital buggers should not be used to finance share buybacks during this period.

While market sentiments have improved thanks to these measures, the number of coronavirus cases in Singapore continue to escalate exponentially. As of 13 April 2020, the country has confirmed 2,918 infections.

Read also: What's the latest on share prices of DBS, OCBC and UOB?

DBS Group’s shares a ‘buy’ for ‘sustainable dividends’

UOB and Maybank’s brokerage teams have lowered their near-term price targets for the DBS stock to S$21.80 per share and S$21.99 per share respectively.

UOB analyst Jonathan Koh named DBS Group his ‘Top Alpha Pick Buy’ for the month of April, citing the US-China trade deal and the bank’s strong deposit franchise and resultant firmer net interest margin as two main determinants of the stock’s potential growth.

He posits that the group is worth buying for its sustainable yield, with wealth management earnings continuing to outperform in the fourth quarter of 2019, and fees from the segment growing 31% year-on-year. DBS Group had also stated that it aims to provide sustainable dividends that will rise progressively for the 2020 financial year.

The group’s board of directors have also advised a final dividend of S$0.33 per share for Q4 of 2019, up 10% quarter-on-quarter. Koh sees the S$24.00 mark as an attractive share price point to accumulate the stock for an eventual dividend yield of 5.5%.

DBS Group’s full-year dividend sum for 2019 was S$1.27 per share, up from 2018’s S$1.20 per share.

On the downside, however, even if the Covid-19 outbreak is contained by June 2020, the bank’s management estimates that the overall revenue could be impacted by between 1-2%. Management also expects negative impact to last one quarter, similar to the SARS outbreak.

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Singapore banks given ‘extra space’ to navigate Covid-19's impact

Meanwhile, Maybank’s Thilan Wickramasinghe noted that even prior to the new regulatory measures, Singapore banks were already well capitalised and had high levels of liquidity at a CET-1 ratio that is roughly 530 basis points higher than the regulatory minimum.

He believes that these new measures are ‘more of a supportive signal for the sector to keep liquidity flowing, while also providing some clarity to the markets in terms of credit charges’.

He added that the MAS’ explicit clarification that it sees no need to restrict dividends also supports the Singapore banking sector’s strong dividend visibility and defensiveness regionally. As a result, this ‘clarity on dividends provides significant visibility for the 6.4% 2020E yield currently offered by the sector’, he wrote.

MAS also sought to mitigate the requirements of recognising expected lifetime credit losses under Financial Reporting Standard (FRS109) by providing guidance on incorporating the significant fiscal and monetary relief measures that have been introduced.

This allowance, Wickramasinghe stated, ‘provides extra space for banks to smoothen and navigate credit charge volatility going forward,’ which will improve earnings visibility for the sector. He gave the DBS Group equity a ‘buy’ rating and an estimated upside of 15%.

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