SINGAPORE (Aug 4): OCBC Research is maintaining its “hold” rating on DBS with a higher fair value estimate of $22.50 after the bank this morning announced net 2Q earnings which came in slightly below market expectations, based on Bloomberg data.
See: DBS 2Q earnings rise 8% to $1.14 bil; achieves record earnings of $2.35 bil for half year
In a Friday report, lead analyst Carmen Lee says that even with a higher fair value estimate, the research house’s remains unchanged given the stock’s current price, as she prefers to re-enter at $21 or lower.
Lee highlights how the bank’s management is positive on the group’s outlook for 2017, with its Wealth segment performed particularly well in 2Q, in line with its local peers and making up 34% of the group’s total fee & commission income. It has also guided for mid-single digit growth in 2H17, she notes.
According to the analyst, DBS’ share price has done well this year – up 25% in the year to date (YTD) – and looking ahead, the bank expects its ANZ acquisition to add another $20 billion to its assets under management (AUM) as well as $600 million to revenue million next year.
Nonetheless, Lee reiterates that DBS’ management remains cognisant of the still-challenging environment for the oil and gas (O&G) sector and the lack of pricing power for the service providers, which could result in a further decline in collateral value and an increase in provisions.
“[Management] is expecting another $300 million of bad debt provisions in 2H17. The asset quality pressure appears to be confined largely to the offshore services sector. Specific provisions for this year are expected to be the same as last year, excluding Swiber,” she cautions.
As at 4.42pm, shares of DBS are trading 2.5% lower at $21.52.
