In a note on March 10, UOB Kay Hian banking analyst Jonathan Koh cut his target price for DBS Group Holdings to $35.80 from $40 earlier. At its height, DBS traded at 1.7x to net asset value (NAV) and higher. United Overseas Bank (UOB) traded up to 1.35x NAV while Oversea-Chinese Banking Corp (OCBC) stayed at a pedestrian 1.1x NAV. At current prices, DBS is down to 1.53x NAV, UOB 1.25x NAV and OCBC is at just 1.02x NAV.
“Systemic risk is elevated but below the levels seen during past crises as Russia is not well integrated into the global financial system,” UOB Kay Hian says. “Singapore banks’ exposures to Europe and Russia are minimal. The US Federal Reserve is expected to kickstart the interest rate up-cycle with a hike of 25bps next week. We see strong support for DBS at $30.00 and for OCBC at $11.00,” it adds.
DBS touched a low of $31 on an intra-day basis during the selldown of the past two weeks, with its lowest close at $31.23. Part of the reason for the sharp run-up in prices in January and February was the perception that the Fed was likely to be increasingly hawkish this year. Some US investment banks such as Goldman Sachs were indicating that the Fed was likely to increase rates some 6–7 times this year. Local banks were forecasting hikes of 4–5 times.
Whatever the case, the minimum hike was likely to be around 25bps every three months or 1% higher during the year. This is still positive for DBS’s net interest income, which could add some $2–3 billion or so to the $8.44 billion it recorded in FY2021. The banks have a December year-end. What could change are the banks’ general provisions. Higher risks would stymie their ability to write back overprovisions during the pandemic. Because of heightened risks, they may have to set aside more general provisions — and this is the unexpected part — that will impact net profits.
Technically, DBS formed a short-term bullish engulfing pattern on the candlestick chart pointing to some form of temporary support-low at $31. The extent of the rebound is likely to be curtailed by resistance at $33. NAV of DBS as at end December was $21.46.
The chart pattern of CapitaLand Integrated Commercial Trust (CICT) is interesting. Since the start of the year, CICT has gained strength against S-REITs by moving sideways to higher as S-REITs moved sideways to lower.
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Technically, CICT has established a narrow trading range between $2.08 and $2.16. But, the candlesticks are mainly white candles. This is a sign of strength. A white candle is formed when prices close at higher levels than they open during a trading session. The signal to watch for is a break above $2.16, which would indicate an upside target.
Part of the reason for this strength could be CICT’s operational resilience. In addition to upcoming contributions from CapitaSpring, its downtown malls could rebound given the government’s attempts to reopen the economy and allow more visitors into Singapore. In addition, Australia is opening up and CICT acquired some A$1.1 billion of properties in Sydney, which could add around 2.4% to DPU, over and above CapitaSpring’s contributions. In addition, properties that were not in operation will be fully operational in 2H2022. These include 21 Collyer Quay and Six Battery Road.
