Hot stock: DBS shares down 2.6% after Shenzhen Rural Commercial Bank deal announcement

Published Wed, Apr 21, 2021 · 11:48 AM

SHARES of DBS reached an intraday low of S$28.27, a 2.6 per cent or S$0.75 drop from its previous close. This puts the lender in a one-week low after it proposed to acquire a 13 per cent stake in Shenzhen Rural Commercial Bank (SZRCB) on Tuesday.

Based on its Tuesday closing price, DBS has a market capitalisation of almost S$74.75 billion. The 5.29 billion yuan (S$1.08 billion) deal will make DBS the largest shareholder of the Chinese bank. (see amendment note)

DBS said it will acquire 1.35 billion new shares in SZRCB at 3.91 yuan per share, representing 1.01 times the book value per share of SZRCB, as at end-December 2020.

The investment will have a less than 0.2 percentage point impact to the banking group's capital ratios, and is expected to be "immediately accretive" to earnings and return on equity.

In a statement made on Tuesday after the market closed, the bank stated that the deal is in line with its plans to expand in the growing Greater Bay Area.

In response, brokers Citibank and RHB maintained their "buy" call, with target prices of S$32.20 and S$33 respectively. RHB noted that this is DBS's second acquisition in five months, while Citi mentioned DBS's previous statement that it was willing to consider "bolt-on" mergers and acquisitions in its other core markets such as India, Taiwan and Indonesia.

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However, Citi noted that investor concerns may include how further acquisitions might affect DBS's dividend policy and management bench depth to handle multiple deals.

Based on SZRCB's financial results for the year ended last Dec 31, the bank generated 4.8 billion yuan of net profit after tax. According to RHB, a 13 per cent share of SZRCB's FY2020 earnings would add 2.5 per cent to DBS's net profit for that year.

Amendment note: An earlier version of this article misstated the market capitalisation of DBS as 74.8 million, when it was in fact S$74.75 billion.

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