Brokers' take: Analysts raise targets on DBS after strong results showing

SEVERAL brokerages have raised their price targets on DBS D05 after the bank on Monday (Feb 14) reported its fourth quarter and full year results with net profit coming in at S$1.4 billion and S$6.8 billion, respectively.

In a report on Tuesday, RHB said its higher S$42.70 target price compared to S$40.40 previously came after factoring in better net interest margins (NIMs) and lower provisions to result in 8 to 12 per cent higher net profit FY2022 to FY2023 estimates.

The research team sees sustained business momentum for the bank this year, coupled with NIM recovery and the release of provisions such that return on equity (ROE) is projected to exceed 13 per cent by FY2023.

"Rate hikes are unlikely to dampen loan demand, while tight management of its small and medium enterprise (SME) portfolio should prevent a major impact. The (bank's) expansion in footprint in 2021 will provide the impetus for sustained growth from FY2024," it said.

While DBS's latest set of results was largely in line with RHB's expectations, it was slightly below that of Maybank Securities and Jefferies. All three brokerages continue to rate the lender at "buy".

In a report on Monday, Maybank analyst Thilan Wickramasinghe attributed the missed forecast to a "timing mismatch" with NIMs not reflecting higher interest rates yet.

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He sees DBS as a prime beneficiary of rising rates as well as economic re-opening, and estimates ROEs to rise by nearly 4 percentage points to 14.3 per cent, above the levels of the past 10 years.

Maybank's target on DBS has been raised to S$41.82 from S$37.03 to value the stock at 1.7 times price to book. Wickramasinghe believes the higher multiple is justified given the group's anticipated growth in ROE, noting that the bank previously traded at 1.8 times price-to-book value before the global financial crisis when ROEs were closer to 11 per cent.

Likewise, Jefferies analyst Krishna Guha said the bank's earnings were marginally lower than the research house's and consensus forecasts due to lower-than-expected net interest income.

He nonetheless lauded other revenue metrics as "outstanding" and believes credit costs is likely to be the next driver of positive earnings revisions. The research house has raised its price target to S$39 from S$37.50.

"DBS's results set the bar for peers who may also follow through with higher payouts or specials. Trading at steep 13.3 times price to equity and 1.8 times price to book but offering highest ROE and higher dividend (3.8 per cent yield), DBS is in all respects the dearest bank of Singapore," said Guha.

Separately, CGS-CIMB reiterated its "add" call on the bank while raising its target to S$39.90 from S$39.20 previously, after raising FY2022-2023 earnings per share (EPS) estimates by 1 to 2 per cent and introducing estimates for FY2024.

Its analysts are expecting a cumulative NIM expansion of about 34 basis points over FY2022 to FY2024 to 1.8 per cent, after factoring in 6 Fed rate hikes over the first 2 fiscal years. The expansion is likely to be backloaded given an estimated 6 months for the pass-through from Fed hikes into NIMs, they added.

CGS-CIMB is also expecting continued portfolio improvements to sustain DBS's general provision reversals over FY2022. It highlighted the bank's SME portfolio as "one to watch" given the compounding effects of inflation and higher debt servicing rates - but noted that current stress tests have yet to reveal any credit quality weakness.

"Realistically, S$200-300 million could potentially be written back in FY2022 with the rest to be held as precautionary buffers," said its analysts.

On the other hand, UOB Kay Hian (UOBKH) has attributed a lower price target of S$40 to DBS compared to its previous S$40.28 target while retaining its "buy" call on the stock.

Its analyst Jonathan Koh noted that while the bank's Q4 results were in line with expectations, UOBKH's net profit forecast for FY2023 has been trimmed by 0.7 per cent to account for a slight moderation in loan growth and less gains from investment securities.

It expects NIM to expand by 15 basis points to 1.61 per cent in 2023 and by 13 basis points by 1.74 per cent in 2024, with four rate hikes each in 2022 and 2023.

In the near term, the research house is estimating a 4 per cent higher net profit for FY2022 due to NIM expansion and muted credit costs of 4 basis points.

UOBKH's new target price matches OCBC Investment Research's S$40 fair value estimate for DBS.

Despite maintaining its "hold" recommendation on the stock, the latter research house views DBS's higher Q4 dividend per share as a positive surprise that signals management confidence in the bank's growth outlook.

"2022 guidance reflects a constructive outlook ahead, driven by mid to high single-digit loan growth, double-digit fee income growth and improvement in NIMs, which should help mitigate higher expense and potential uptick in credit risks amid a rising rate and inflationary environment," said OCBC Investment Research in a Monday note.

Shares of DBS closed at S$36.53 on Tuesday, down 1.8 per cent or S$0.67. 

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