Why DBS, OCBC shares are favoured by analysts
Singapore’s largest banks DBS and OCBC are seeing strength in their counters ahead of a travel initiative and amid speculation on potential deals.
- DBS Group (SGX: D05) share price climbs to S$30.55 on Wednesday (13 October)
- Maybank analysts expect DBS to embark on more M&A deals
- OCBC Bank (SGX: O39) rallies over 2% to S$11.84 per share
- OCBC is launching a travel-booking platform as air travel resumes
- Keen to take advantage of DBS and OCBC’s rising share prices? Open an account with us to long the stocks now.
DBS stock price gains momentum
Southeast Asia’s biggest bank DBS saw its stock price trade 1.4% higher at S$30.55 as of 16:00 SGT on Wednesday.
Sentiment among analysts remained mostly positive, with 14 ‘buy’ calls, seven ‘hold’, and no ‘sell’ recommendations. Their target prices averaged S$33.55, according to Bloomberg data.
Bloomberg Intelligence (BI) analysts anticipate that Singapore lenders’ net interest margins may get some support from steepening yield curves. However, the banks’ pricing power could be limited by excess liquidity in the system and rising competition for high-quality assets.
‘DBS, with Singapore's largest retail deposit base, could suffer more than peers in a low-rate environment, which undermines its funding advantage against smaller domestic and foreign banks,’ BI wrote.
Furthermore, Hong Kong’s interbank rates have declined sequentially. This may hurt margins for DBS and OCBC more significantly than for UOB, due to the two larger banks’ greater loan exposures in the city, BI said.
Maybank highlighted that Singapore has seen a flurry of mergers and acquisitions (M&A), restructurings, and privatisations this year. More such deals are likely, and DBS may be among the potential M&A candidates in the near-to-mid term, Maybank posited.
Rating DBS shares ‘buy’ with a S$35.11 target, the analysts pointed out that the Singapore bank has been increasing its investments to broaden its reach in key markets. They also estimated the lender has around S$6.6 billion of excess capital.
‘We believe markets such as India, China, Indonesia may be key areas of interest for the group,’ Maybank added.
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OCBC rides on travel reopening
Meanwhile, OCBC Bank’s shares rose some 2% to S$11.84 as of 15:55 SGT on Wednesday.
In November, the lender will launch a portal for customers to book airline tickets, hotels and car rentals using their bank reward points as well as credit or debit cards.
The new travel-booking platform comes at a time when Singapore is easing its travel restrictions. It will be integrated into OCBC’s internet and mobile banking services, the bank announced on Tuesday.
Covid-related travel insurance and the booking of pre-travel Covid-19 tests will also be added to the portal soon.
Out of 22 analysts, 17 suggested ‘buy’, five said ‘hold’, while none gave ‘sell’ calls on the OCBC counter. Bloomberg data showed that their average target price stood at S$13.92.
In a note last Thursday, RHB analyst Shekhar Jaiswal opined that OCBC and its smaller peer UOB ‘are the best proxies to continued economic growth and the expected rise in interest rates’.
Jaiswal recommended ‘buy’ on OCBC shares with a price target of S$14.30. By sector, he rated financials ‘overweight’.
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*Based on the Investment Trends 2018 Singapore CFD & FX Report based on a survey of over 4,500 traders and investors. Awarded the Best Online Trading Platform by Influential Brands in 2020. Awarded the best retail FX provider for Asia by FX Markets in 2020
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