SINGAPORE (Feb 1): OCBC expects DBS Group Holdings to post a good set of 4Q17 results on Feb 8 as momentum appears to be healthy this year after last year’s stellar share gains of between 30%-43% for the three banks.
The research house expects broad-based growth in 2018, and are projecting earnings to go up by 24.9% in FY18 and 10.1% in FY19.
"With the recent re-rating, we have also raised our valuation peg to 1.45 times FY18 book. This increases our fair value estimate to $29.50 from $27.40," says lead analyst Carmen Lee in a Thursday report.
DBS touched a new historical high of $27.40 on Jan 25, up 51% from the 52-week low of $18.12 in Feb 2017. The bulk of the price gains came about in the last three months when the re-rating of Asian banks lifted DBS’s valuations from the trough in 2016.
Prior to this, Singapore banks were trading as low as less than 1x historical book value back in 2016 as investors were concerned about the banks’ exposure to the oil and gas sector and the required write-offs and the potential hit on income statements and balance sheets.
With the stable outlook for the region and the pick-up in equities, Singapore banks are now trading at 1.4 times historical book, slightly below Asian banks’ average of 1.6 times book.
"With healthy economic growth in the Asia Pacific region, we expect DBS to be in a good position to enjoy another year of broad-based fee income growth," says Lee.
He also expects DBS's wealth business to enjoy another good year with an increase in AUM and earnings as well as treasury income to pick up in 2018.
Geographically, Lee expects both Singapore and Hong Kong to do well in 2018. The pick-up in property transactions should also result in better income.
In addition, the positive spillover effect from the gains in equity markets into the first month of 2018 is also a good indicator. For the longer term, we expect its digitalisation push to put it in a good position to grow as more clients embrace digital banking services.
After last year’s stellar share gains of between 30%-43% for the three banks, the momentum appears to be healthy this year.
As at Feb 1, shares in DBS are up 14 cents at $26.54 or 12.3 times FY18 earnings per share of $2.15.
