SINGAPORE (Sept 14): OCBC has upgraded its rating on DBS Group to “buy” from “hold” with an unchanged fair value estimate of $22.50 due to the recent drop in its share price.
This comes after the stock fell from its recent high of $22.25 in the past two months to close at a low of $20.38 yesterday. This translates to a share price decline of 8.4%, meaning about $4.8 billion of market value has been wiped off.
In a Thursday report, lead analyst Carmen Lee observes that DBS’s share price is up 17.5% year to date despite coming off from the high.
At the stock’s price of $20.38 and with a dividend yield of 3.2%, Lee says the current price correction now presents an opportunity to accumulate the stock again.
In particular, the analyst notes that DBS has significantly fallen more than OCBC and UOB, which have declined 4.1% and 5.6%, respectively.
This higher than average decline in share price could be due to recent market concerns over the bank’s oil and gas (O&G) provisions.
DBS last posted impairment charges of about $304 million for the second quarter ended June, which was significantly higher than those of UOB and OCBC of about $180 million and $169 million, respectively.
See: DBS 2Q earnings rise 8% to $1.14 bil; achieves record earnings of $2.35 bil for half year
“Recent market jitters over North Korea nuclear test also further added to the cautious tone in the market and share prices generally eased across the board,” recalls Lee.
While she acknowledges that the 2Q17 net earnings of DBS have come in slightly below market expectations, Lee highlights the strong performance of the bank’s wealth segment, which accounted for 34% of its total fee & commission income.
As such, the analyst expects DBS’s fee-based income momentum and strong wealth income to continue into 3Q17.
She also believes the group’s latest acquisition of Australia and New Zealand Banking Group (ANZ) to drive its wealth business further in 2018, both in terms of assets under management (AUM) as well as revenue.
See: DBS to buy ANZ Bank’s wealth, retail units in 5 Asia nations
“Recently, DBS has also received in-principle approval to convert its existing India franchise to a wholly-owned subsidiary. This will further deepen its presence in this market. While the operating environment for the O&G sector is still challenging, the outlook for the local property market has improved recently with more transactions and en-bloc sales,” says Lee.
As at 11.12am, shares in DBS are trading 8 cents lower at $20.30 or 10.36 times FY18 forward earnings.
