CGSI downgrades DBS to ‘hold’ on ‘muted’ Q4 performance forecast; S$60.50 target price unchanged

[SINGAPORE] CGS International (CGSI) has downgraded its call on DBS to “hold” from “add”, citing forecasts of a “muted” performance for the fourth quarter of 2025 and limited upside potential.

Its target price for the bank remained unchanged at S$60.50 – 2.3 per cent above its latest closing price of S$59.12 on Friday (Jan 16).

With valuations at an all-time high, a potential “lack of earnings growth” for FY2025 to FY2027 could limit upside potential, said CGSI analyst Tay Wee Kuang in a report on Friday. He noted that DBS’ share price is up 35 per cent since the start of FY2025.

“On top of a seasonally weaker quarter that would affect flow-related income such as wealth management fees, markets’ trading income and treasury customer sales, we expect DBS’ net interest margin (NIM) to decline (by around) five basis points quarter on quarter in Q4 2025,” said Tay.

This follows a 28 basis point decline in the Singapore Overnight Rate Average (Sora) to an average of 1.16 per cent in Q4 2025 from 1.44 per cent in Q3 2025, said Tay.

Several downside risks could lead to a larger-than-expected decline in earnings for FY2026, he noted.

These include a potentially lower-than-expected net interest income for FY2026, due to a decline in NIM amid Sora weakness, weaker macroeconomic conditions resulting in higher provisioning, and a slowdown in non-interest income growth.

Wealth management fee growth, potential recovery of exposure to Autobahn

Despite muted forecasts, DBS still offers an “attractive” yield of around 5.6 per cent for FY2026, with a forecast dividend per share of S$3.30 for the same period, said Tay.

Capital return initiatives could enhance yield attractiveness, he said, noting that an outstanding S$2.6 billion in capital has been allocated for DBS’ S$3 billion three-year share buyback programme.

SEE ALSO

DBS unlocks S$1 billion in AI value in 2025

What are significant risk transfers – and why is DBS reportedly considering them?

Autobahn group fallout tightens private-hire car financing, but COE premiums unlikely to fall

The bank’s wealth management segment could record further growth in its assets under management (AUM) for Q4 2025, following the segment’s 18 per cent year-on-year AUM growth for the first nine months of 2025.

This could support its guidance for wealth management fees to grow by a mid-teens percentage in FY2026, said Tay.

Potential increases in credit costs for Q4 2025 as a result of its loan exposure to the indebted car leasing company Autobahn could be buffered by a write-back of DBS’ management overlay which stood at around S$2.5 billion for the first nine months of 2025, said Tay. DBS’ loan exposure to Autobahn is around S$102.6 million.

“The withdrawal of Autobahn’s appeal for creditor protection means that creditors’ claims or writs of seizure and sale of Autobahn’s fleet of vehicles may proceed, potentially allowing DBS to recoup part of its exposure to Autobahn,” he said.