DBS to see ‘brighter days ahead’, analysts believe

Southeast Asia’s largest bank may see earnings upside, improving dividend yield, and new revenue streams, analysts say.

  • DBS Group Holdings (SGX: D05) share price tumbles 1% to S$26.64 per share
  • Analysts are mostly upbeat on the stock, given the potential growth opportunities
  • Downside risks may arise if the dividend cap lasts longer than expected
  • Trade DBS stocks, long or short, with an IG account

Could DBS shares reach S$28.93?

DBS’ management has adopted an optimistic tone, expecting stable net interest margins, better fee income from stronger business momentum, and lower impairments in 2021.

Jefferies analyst Krishna Guha upgraded its shares to ‘buy’ with a S$25.88 target. Although its valuations continue to be elevated, DBS’s asset quality issues in India appear to have been ‘decisively dealt with’, and its acquisition of troubled Indian lender Lakshmi Vilas Bank (LVB) should be profitable in one to two years, Guha wrote.

CIMB’s research team foresees ‘brighter days ahead’ amid clearer loan repayment trends post-moratorium, reiterating an ‘add’ rating and S$28.35 target.

Earnings upside could come from impairment writebacks, assuming a return to pre-Covid credit costs of about S$700 million to S$800 million, CIMB analysts said.

Out of 20 research teams, 13 recommended ‘buy’ on DBS, seven said to ‘hold’ while none had ‘sell’ calls. Their average 12-month target price was S$28.93 as of Saturday, according to Bloomberg data.

The stock fell 1% to finish Friday at S$26.64 with nearly 9 million shares changing hands.

DBS chases new growth platforms

The banking group is positioning to capture new revenue opportunities, Guha pointed out.

Apart from the LVB deal, DBS has received approval for a 51%-owned China securities joint venture, and will also launch a digital exchange to provide tokenisation, trading and custody of digital assets.

It is also expanding its retail wealth management arm with financial planning tools, and boosting its supply-chain digitalisation platform.

‘While it is still early to estimate the top-line and bottom-line contribution from such initiatives, they may emerge as new share price drivers, compared to legacy ones,’ Guha said.

UOB Kay Hian, which maintained a ‘hold’ call last Friday and lowered its target to S$29.20, expects DBS’ dividend yield to improve from 4.2% in 2021 to 5.1% in 2022.

What might pressure DBS’ share price downwards?

Jefferies’ Guha believes the key risks for the stock would be worse-than-expected asset quality, any large formation of non-performing assets, significant mergers and acquisitions, as well as a longer-than-expected cap on banks’ dividends in Singapore.

UOB Kay Hian noted that DBS may face headaches from lawsuits in India. In a case involving the misappropriation of fixed deposits, Religare Finvest Limited filed a petition to substitute DBS Bank India as the defendant instead of LVB.

DBS subsequently told The Business Times that provisions had been made on this front, and the primary respondents in the lawsuits would still be the Indian government and the Reserve Bank of India. DBS added that it has ‘no incremental unprovided risks’ in these lawsuits.

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