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DBS still OCBC's top banking pick despite 16% YTD gain

Stanislaus Jude Chan
Stanislaus Jude Chan • 2 min read
DBS still OCBC's top banking pick despite 16% YTD gain
SINGAPORE (Mar 5): OCBC Investment Research is raising its fair value estimate for DBS Group Holdings to $32.53, or 1.7 times of its book value, from $29.50 previously.
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SINGAPORE (Mar 5): OCBC Investment Research is raising its fair value estimate for DBS Group Holdings to $32.53, or 1.7 times of its book value, from $29.50 previously.

“With the re-rating of Asian banks, which are now trading at 1.6x book, we believe that DBS deserves to trade at the same or higher valuation,” says lead analyst Carmen Lee in a report on Monday.

This comes despite stocks in the banking giant having climbed some 15.9% year-to-date, compared to a 3.3% rise in the benchmark Straits Time Index (STI).

“DBS has consistently stayed as our top pick in the banking sector,” say Lee, calling the bank “a clear outperformer in the Singapore market so far this year.”

The brokerage is keeping its "buy" call on DBS.

Lee notes that DBS’ market capitalisation is currently the largest on the Singapore Exchange (SGX), and accounts for about 10% of the Singapore market’s total capitalisation.

DBS posted record quarterly earnings of $1.22 billion for the 4Q ended December, up 33% from a year ago. This brought full-year 2017 earnings to a record $4.39 billion, 4% higher than last year.

DBS posts record earnings of $1.22 bil for 4Q; proposes final dividend of 60 cents and special dividend of 50 cents

“Management is also upbeat about the outlook for 2018,” says Lee. “We believe that the current renewed interest in the Singapore residential property market should also be positive for its mortgage business.”

With four US Fed hikes now expected in 2018 following the latest comment by US Federal Reserve chairman Jerome Powell, Lee opines that the outlook remains positive for Singapore’s banking sector.

As at 4.46pm, shares of DBS are trading 39 cents down, or 1.4% lower, at $28.02. This implies an estimated price-to-earnings ratio of 12.7 times and a dividend yield of 4.1% for FY18.

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