Brokers' take: RHB, Jefferies raise DBS target price on strong business momentum

FOLLOWING DBS's robust Q1 earnings on record fee income and lower provisions, RHB and Jefferies are raising their target prices for the bank, citing strong business momentum and a high loan growth guide as reasons for the optimism on South-east Asia's largest bank.

RHB and Jefferies are maintaining a "buy" call for DBS, with RHB raising its target price to S$34 from S$33 previously, while Jefferies has raised its target price to S$33.50 from S$33 previously.

This came after DBS reported a record Q1 net profit of S$2.01 billion, a 72 per cent year-on-year growth. The increase was driven by general provisions write-backs and trading gains, with partial offset from lower net interest income due margin, said Jefferies.

Both research houses shared the same sentiment that business momentum for DBS is expected to remain strong, with loan growth for DBS expected to be a high single-digit as compared to its earlier guidance for middle single-digit growth.

In a Monday report, analysts from RHB said they believe DBS remains a "good proxy" to Singapore's economic recovery, and project the return on equity to recover to pre-pandemic levels in 2022 based on revised earnings.

Downside risk to RHB's investment view would come from acquisitions that could overstretch management resources, the research house said.

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With DBS's annualised Q1 net fee income pointing to a 25 per cent year-on-year rise and the management maintaining its guidance for double-digit growth for FY2021, RHB analysts have factored in a more conservative 17 per cent growth.

RHB is raising the estimates for net profit in FY2021-2022 by 7-8 per cent, reflecting the revised guidance.

Meanwhile, Jefferies analyst Krishna Guha noted in a Friday report that the full-year total allowance of DBS is likely to be sub S$1 billion, a slight improvement from before, while various investments will weigh on costs which will be 3-4 per cent higher year on year. This suggests structural improvements in fee activities and treasury market, he added.

With the group acquiring a 13 per cent stake in Shenzhen Rural Commercial Bank (SZRCB), China for S$1 billion, Mr Guha highlighted that there would be potential upside if SZRCB has an initial public offering.

The research house noted that key downside risks include idiosyncratic asset-quality issues as moratoriums roll off and extent of dividend upside as the bank engages in various M&As.

"While the group has the ability to pay, we think MAS will oblige by capping the payouts," Mr Guha said.

DBS shares ended the day S$0.32 or 1.07 per cent lower at S$29.59.