SINGAPORE (Nov 20): CIMB is maintaining its “add” call on DBS, given the bank’s ambition to be the “D” in the GANDALF stocks -- an acronym for the world’s largest tech stocks of Google, Amazon, Netflix, Apple, Linkedin and Facebook.

From digitalisation, CIMB believes that DBS would be able to achieve ROE of about 13-14% in the next three-five years.

“We believe DBS should be in your Singapore core holdings,” says analyst Yeo Zhi Bin in a Friday report, adding that CEO Piyush and CFO Sok Hui’s presence on DBS Investor Day were “Jeff Bezos-esque”.

While banks showboating their technology transformation is nothing new, what impressed Yeo was DBS’ ability to measure the financial performance of its digitalisation efforts through metrics such as enhanced customer stickiness, higher transaction volumes as well as lower costs.

Digital customer is growing faster and has higher ROE of 27% versus the traditional 19%. Consumer and SME income grew double-digits, cost-income ratio fell to 43% in 2017 from 49% in 2015 and ROE was boosted to 24% in 2017 from 22% in 2015.

“In a disruptive world, it is probably time for investors to think laterally and overlay a technology coat on DBS. After all, telcos are already venturing into lending,” says Yeo.

The bank emphasised that its digitalisation transformation is not simply a case of having a team to drive innovation within the organisation. It entails re-architecting its technology, insourcing its technology, launching the world’s largest banking API platform, sharpening its customer focus and most importantly, changing the culture by transforming the bank into a 22,000 person startup.

In India and Indonesia where DBS does not have much physical presence, it has launched a distribution model by putting an entire bank in a smartphone.

DBS estimates that income in these two countries could register over 20% CAGR, with a potential to contribute about 10% of the bank’s income in five years.

“DBS has convinced us on its digital transformation and the resultant positive impact on P&L,” says Yeo who has a target of $25.00.

As at 10.42am, shares in DBS are down 31 cents at $23.82 or 10.9 times FY18 earnings.