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Analysts up DBS's TP to at least $34.90 amid positive business outlook

Felicia Tan
Felicia Tan • 4 min read
Analysts up DBS's TP to at least $34.90 amid positive business outlook
The bank’s net profit of $1.7 billion for the quarter stood above consensus’ estimates of $1.5 billion.
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Analysts are all positive on DBS Group Holdings after the Singapore bank posted its results for the 3QFY2021 ended September on Nov 5.


See: DBS reports 31% higher net profit of $1.70 bil in 3QFY21; declares quarterly dividend of 33 cents

The bank’s net profit of $1.7 billion for the quarter stood above consensus’ estimates of $1.5 billion.

CGS-CIMB Research analysts Andrea Choong and Lim Siew Khee have maintained “add” on the bank with a higher target price of $34.90 from $32.70 previously.

The new target price is based on 1.5 times the price-to-book value (P/B) for DBS’s FY2022.

DBS’s net profit of $1.7 billion for the 3QFY2021 stood above Choong and Lim’s estimates of $1.64 billion. DBS’s 9MFY2021 net profit also made up 79% of their FY2021 forecasts.

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“Management’s messaging on its outlook for FY2022 comes from a position of strength, with its key non-interest income engine of wealth management gaining good momentum to be the key driver of the bank’s double-digit fee income growth target,” write Choong and Lim on Nov 5.

“Treasury income will likely be the swing factor sequentially as impairment provisions stay stable y-o-y. Assuming the relatively benign credit environment holds in 4QFY2021, total provisions could settle below $100 million in FY2021,” they add.

In addition, Choong and Lim expect earnings upside to come from potential Fed rate hikes as well as equity-accounted contributions from DBS’s 13% stake in Shenzhen Rural Commercial Bank.

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From Shenzhen Rural Commercial Bank, the analysts from CGS-CIMB expect NPAT of $120 million per annum in FY2022.

“On the bank’s interest rate sensitivity, a 100 basis point (bp) increase in Fed rates should equate to $18 million to $20 million in income per bp (or $2 billion using a rate of $20 million per bp). This is comparatively higher that its sensitivity of $13 million-$14 million in income per bp in the previous rate cycle given its ample liquidity position (75% CASA ratio in 3QFY2021 vs. c.60% in FY2017-FY2019),” they add.

“Having set up a separate legal entity (DBS Finnovation) to house its digital initiatives such as Partior, Climate Impact X and DBS Digital exchange, the eventual monetisation of these assets are set in motion as the carve-out of these assets allow for better price discovery and partner collaboration (for customer acquisition) as they scale up,” continue the analysts.

PhillipCapital analyst Glenn Thum has also kept his “accumulate” call on DBS Bank with a higher target price of $35.90 from $32 before.

In addition, Thum has upped his earnings estimates for the FY2021 by 3.9% as he lowers allowances estimates for the FY2021.

“Despite economic uncertainties from Singapore’s return to Phase 2 (Heightened Alert), loans and transaction pipelines are expected to be strong,” he says, on his move to increase his earnings estimates.

“We now assume 1.56 times FY2021 P/BV in our Gordon Growth Model (GGM) valuation, up from 1.39 times, as we raise our return on equity (ROE) estimates to 11.6%. DBS pays a 4.5% FY2021 with earnings upside from higher interest rates,” writes Thum in a Nov 8 report.

For more stories about where money flows, click here for Capital Section

The bank’s PATMI for the 9MFY2021 also exceeded Thum’s expectations, coming in at 83% of his FY2021 forecast.

“With its capital position and liquidity – CET-1 ratio of 14.5% in 9M21 vs. 13.9% in 9M20 – well above regulatory requirements and high allowance reserves, we believe the bank has sufficient provisions to ride out current economic uncertainties. 3QFY2021 distribution per share (DPS) is 33 cents, back to pre-pandemic levels. We do not rule out special dividends,” he adds.

Finally, the Singapore research team at RHB Group Research has kept “buy” on DBS Group Holdings with a higher target price of $40.40 from $35.50 previously.

The team is positive on the bank amid a healthy business outlook for the FY2022, as announced by its management.

For more stories about where the money flows, click here for our Capital section

DBS’s management has also guided for another year of negative JAWs in the FY2022, albeit a narrower figure y-o-y, due to investments for growth and wage pressures. This assumes no rate uplift in FY2022, says the team.

Like the rest of the brokerages, DBS’s earnings for the 3QFY2021 stood above RHB’s expectations. The bank’s earnings for the 9MFY2021 stood at 80% of its earnings estimates for the FY2021.

The team has thus raised its net profit estimate by 3% for the FY2021 after taking into account lower-than-expected provisions.

That said, it has lowered DBS’s earnings estimates for the FY2022 by 3.5% for lower non-interest income and higher opex.

Shares in DBS closed 15 cents lower or 0.47% down at $32.04 on Nov 16, or 1.1 times FY2021 P/BV and 4.5% dividend yield, according to PhillipCapital's estimates.

Photo: Bloomberg

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