SINGAPORE (July 12): Credit Suisse is maintaining its “outperform” rating on DBS Group Holdings, with a slightly higher target price of $22.70, from $22.60 previously.
According to Credit Suisse lead analyst Danny Goh, Singapore’s local interest rates are likely to start playing catch up with US rates, which are expected to see subsequent rate hikes.
Goh says DBS is most leveraged to local rate movements as it has the highest ratio of deposits in current and saving accounts to total deposits. DBS has a CASA of 62%, compared to UOB’s 45% and OCBC’s 50%.
“According to management, approximately $60 billion of loans which are priced off SIBOR/SOR (50:50 split) will be directly impacted by short-term rate movements with three to six months lag,” Goh says in a report on Wednesday.
Goh notes that DBS has the highest score on the Street Sentiment Index, which is a reflection of the number of “buy”, “hold” and “sell” calls among sell-side analysts.
In addition, Goh opines that there is a possibility of higher dividends. “Based on our estimate, DBS could have some $3 billion of excess capital that could be distributed as dividends,” he says.
Credit Suisse expects DBS to raise its dividends to 65 cents for FY17, from 60 cents previously. This translates to a payout ratio of 35.1%, compared to approximately 36% in FY16.
As at 3.53pm, shares of DBS are trading 16 cents lower at $20.61.
