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Analysts from Maybank, UOBKH raise TPs on DBS after 1HFY2023 results

Felicia Tan
Felicia Tan • 5 min read
Analysts from Maybank, UOBKH raise TPs on DBS after 1HFY2023 results
Analysts are mostly positive on DBS's 2QFY2023 results. Photo: Bloomberg
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Analysts from Maybank Securities and UOB Kay Hian have raised their target prices on DBS Group Holdings D05 -

after the bank’s results for the 1HFY2023 ended June surpassed expectations. The analysts have also kept their “buy” calls.

“The group’s strong franchise is helping asset yields expand in the current higher-for-longer interest rate environment, while keeping funding cost escalations under control,” writes Maybank’s Thilan Wickramasinghe.

“Strong wealth management inflows are poised to deliver additional growth as market conditions turn. These factors should be supportive of higher sustainable medium-term return on equities (ROEs) as well as materially increased dividend upgrades,” adds the analyst, who has upped his target price to $39.36 from $38.51 previously. At this target price, DBS would trade at 1.6x P/B, which is “reasonable” for an implied medium-term ROE of 15%, he says. DBS’s management, during its results briefing, has said that it is confident of defending its medium-term ROE at within the 15% to 17% range.

On the back of the bank’s better-than-expected earnings for the six- and three-month periods, Wickramasinghe has also raised his earnings estimates for the FY2023 to FY2025 by 4% to 6%, although he notes that the bank’s asset quality in a slowing growth environment is a key risk.

Going forward, the analyst sees high dividend potential with the surprise increase in dividends for the 2QFY2023.

“DBS surprised with a six-cent q-o-q increase in dividend per share (DPS), when normally such hikes are reserved for 4Q. It plans to increase base dividends by 24 cents y-o-y. Additionally, there is $3 billion ($1.20 per share) of excess capital management plans to release going forward,” says Wickramasinghe.

See also: DBS upgrades Grab to ‘buy’ with higher TP of US$4.29

“While special dividends are one possibility, we think there is potential for base dividend to be raised above the minimum guided range over the medium term,” he adds. “We have conservatively assumed one to seven cents per share of higher than base dividends for FY2023 to FY2025. Given the quantum of excess capital, risks are on the upside.”

UOB Kay Hian’s Jonathan Koh has raised his target price to $44.35 from $41.50 previously as he sees that DBS’s net profit goal of $10 billion is within reach.

Koh has also upped his earnings forecast for FY2023 by 3% due to the better-than-expected results for the 2QFY2023 and mild upside for net interest margin (NIM) in the 2HFY2023.

See also: Citi downgrades SGX to ‘sell’ with lower TP of $9

Upgrade from Goldman Sachs

Goldman Sachs’ Melissa Kuang has upgraded her call on DBS to “neutral” with a revised target price of $35.30 as she is now more optimistic on the bank’s outlook.

In her report, Kuang now sees better NIM trajectory as NIMs have yet to reach their peak on the back of the latest rate hike by the US Federal Reserve and the higher Hong Kong Interbank Offered Rate (HIBOR).

Kuang is also positive on capital returns that are likely to be more and earlier than previously expected. “As such, we believe management is keen to pay out more capital to help reduce the build-up of capital on the balance sheet.”

On this, Kuang has also lifted her dividend forecast and is now forecasting yields of 5.7%, 6.4% and 7.1% for FY2023, FY2024 and FY2025 respectively.

“We see valuations balanced with DBS trading at 1.38x FY2024 forward P/B, +1 standard deviation (s.d.) vs historical 10-year range reflective of its FY2025 ROEs at 14.8% vs historical average of 12.6%,” she says.

CGS-CIMB Research’s Andrea Choong and Lim Siew Khee have kept their “hold” call on DBS with an unchanged target price of $35.30.

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“We believe [DBS’s] valuations of 1.5x calendar year (CY) 2023 P/BV (1 s.d. above 10-year mean) has priced in flattish earnings growth in the next two years,” they write.

Owing to the recent US Fed fund rate hike, Choong and Lim have also raised their NIM expectations for the FY2023 to FY2025 by 9 to 11 basis points (bps) to 2.06% to 2.17% “given the elevated NIM performance and Fed fund rate hike”.

In the 2HFY2023, the analysts expect DBS to report NIM upside thanks to the July rate hike and the residual pricing of its commercial book.

“DBS guides for several bp upside in its NIM in 2HFY2023, with NIMs possibly peaking in 3QFY2023 before tapering off as funding cost pressures persist (albeit reduced),” they note.

The analysts are also seeing higher dividends to come from DBS, with raised expectations of $2.22 to $2.70 for the FY2023 to FY2025. The estimate includes a “conservative” annual special dividend of 30 cents per share.

“We think DBS’s elevated dividend trajectory over FY2023 – FY2025 will sustain investor interest in the stock. Its quarterly dividend per share (DPS) rose to 48 cents in 2QFY2023 (1QFY2023: 42 cents) amid its guidance of 24 cents annual DPS increment in the medium term; this implies another DPS hike to 54 cents in 4QFY2023, bringing FY2023 total ordinary DPS to $1.92,” they note.

“Imputing its increment guidance and track record of raising DPS in 4Q, we expect FY2024 ordinary DPS to total $2.22 (1Q-3QFY2024: 54 cents, 4QFY2024: 60 cents),” they add. “This is notwithstanding the $3 billion surplus (or $1.20/share) in excess capital that DBS aims to distribute via ordinary DPS step-up (most preferred option), special dividend, or buyback over the next three years.”

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