SINGAPORE (Sept 2): Daiwa is reiterating its “buy” call with $22 price target for DBS Group Holdings as the research house believes the street’s post-Swiber earnings per share downgrades are overdone.
In a Thursday report, analyst David Lum notices that Daiwa’s 2016-18 EPS, which already incorporate DBS’s 2Q16 results and impairment charges for the Swiber exposure, are still 4-14% higher than those from Bloomberg consensus.
But Lum believes the calculations by the research house are not based on “wildly optimistic assumptions”.
The analyst says DBS’s riskiest exposure is to the oil and gas support services (OGSS) segment in the sum of $5 billion and the steel and coal commodities segment at $3 billion that the bank highlighted in its 2Q16 results as having “some weaknesses”.
This means total “at risk” exposure of $8 billion or equivalent to less than 3% of DBS’s loans.
In addition, if the assumption is made that 33% of “at risk” exposure sours completely by end 2018 and that expected loss on default is 50%, Lum estimates that the annual credit cost over the next 2.5 years would only be 18bps.
Fortunately, there is no evidence of further material weakness in other segments, according to the bank, says Lum.
“We reaffirm our Buy rating with 12-month target price of $22,” concludes the analyst.
Shares of DBS are up 0.2% to $15.06.
