Brokers’ take: Analysts sanguine on DBS’ dividend prospects despite MAS curbs
Michelle Zhu
SEVERAL brokerages indicated that they viewed the Monetary Authority of Singapore’s (MAS) latest restrictions on DBS as little threat to the bank’s earnings and dividend prospects.
MAS on Wednesday (Nov 1) imposed a six-month pause on DBS’ non-essential IT changes, after repeated and prolonged disruptions of the bank’s services this year.
DBS will also not be allowed to acquire new business ventures during this period, or reduce the size of its branch and ATM networks in Singapore.
MAS will, however, retain the multiplier of 1.8 times to DBS’ risk-weighted assets (RWA) for operational risk, which was imposed after earlier incidents in March and May.
Comparing this to OCBC’s requirement to apply a multiplier of 1.3 times RWA, as announced by MAS in May 2022, Citi Research said the unchanged multiplier for DBS is a “positive outcome”.
“That said, the six-months review by MAS should lower the probability of a meaningful excess capital distribution,” said Citi analyst Tan Yong Hong.
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Citi has a “sell” call on DBS and a target price of S$29.
The research house forecasts DBS’ FY2023 dividend per share (DPS) to include another S$0.06 step-up in ordinary dividends, on top of a S$0.10 special DPS expected to be announced during the bank’s Q4 results release in February 2024.
However, Tan cautioned of some risk that the ordinary DPS may be maintained throughout the financial year.
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The analyst said he prefers OCBC for “having the clearest pathway to higher dividends”, given its improving H2 profitability and excess capital.
“Assuming no DPS step-up or special distribution implies DBS is trading at about 5.8 per cent FY2023 dividend yield, versus OCBC’s visible pathway to 6.4 per cent dividend yield,” he noted.
Lim & Tan Securities, on the other hand, said the latest MAS directive is a “relief” for DBS.
“We believe that while IT and compliance costs will likely increase for DBS, it would not detract from their ability to capitalise on the higher-for-longer rate environment,” added its research team.
Lim & Tan maintained its “accumulate” rating on the stock, as it continues to see upside in the bank’s dividend payments, along with potential special dividends from its excess capital.
RHB Research, however, lowered its target price on DBS to S$34.70 from S$36.30 previously, upon news of MAS’ regulatory actions.
This came as the research house raised its cost-of-equity assumption by 25 basis points to 12.25 per cent to reflect potential risks to DBS’ earnings and further regulatory actions. Its earnings forecasts remain unchanged for now.
RHB remains “neutral” on the bank, adding that the potential risks to its earnings “may not be too significant”.
Shares of DBS were trading S$0.25 or 0.8 per cent lower at S$32.78 as at 10.52 am on Thursday.
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