RBS upgrades DBS Group (D05.SG) to Buy from sell, and raises its target to S$16.50 from S$11.50. It says “DBS’s shares have been broadly flat for about a year now. As is well established, this reflects relatively weak underlying pre-impairment profit delivery (3.7% for FY10F and minus 0.6% for FY11F) on the back of historically low Sibor.” 

But the house says at 11.7X FY12F P/E and 1.2X FY12F P/B, “both broadly mean valuation levels, most of the low Sibor effect seem to us to be in the price.” RBS expects a “relatively powerful” recovery in pre-impairment profit growth to 11.8% FY12F, driven by a combination of higher rates, continued strong loan growth and moderating cost pressures. 

 

It says broad expectations of a recovery in U.S. rates are getting nearer, which is not reflected in the price, while the market “seems to attach little or no value as yet to the internal restructuring that is taking place at DBS.”

 

Shares are up 0.7% at $14.86.