The Singapore research team at RHB Group Research has maintained its ‘buy’ rating for DBS Bank with a higher target price of $33 from $30 previously after the stock hit a 52-week high of $29 on March 30. 

The team remains bullish on DBS as a proxy to Singapore’s economic recovery, despite anticipating some selling pressure ahead of the inclusion of US-listed SEA into the MSCI Singapore Indices from May.

Their higher target price is underpinned by a lower equity risk premium of 7.5% from 8.85% previously to reflect an improving outlook, as well as a raised ROE for FY2022 to 11.5% from 11.3%.

The team views that the recovery in the Singapore economy, driven by its reopening and the vaccination programme, bodes well for DBS’ asset quality and normalisation of credit costs. They note that DBS’ loans under moratorium are down significantly to $4.8 billion or 1.3% of total loans compared to $16.9 billion or 4.5% as of September 2020, while general provisions have been boosted to $4.31 billion.


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While the team views that loans growth would likely be subdued in 1QFY2021 ending March, demand for credit should pick-up from the second half of the year and that the bank should achieve its mid-single-digit loan growth target for FY2021.

“For 1HFY2021, we expect DBS’ income growth to be underpinned by healthy demand for wealth management products and the recovery in card and trade-related fees,” they add.

In addition, rising US treasury yields are stoking expectations for Federal rate hikes, which the team notes could mean a potential net interest margin recovery for DBS.

The team has maintained its forecasts in anticipation of the 1QFY2021 results in late-April, noting that there could be upside risks to their estimates.


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“We believe there could be upside risks to our earnings as the economic recovery and resilience in asset quality may see management turning more upbeat on revenue growth and the prospects of credit cost normalising faster-than-expected,” the team says.

RHB has also conservatively assumed a dividend per share (DPS) of 90 cents for FY2021, despite management guiding that a pre-Covid DPS of $1.23 may be possible given the bank’s capital strength. The team notes that the Monetary Authority of Singapore will likely communicate guidance on dividend payout after the release of banks’ 1Q results in May.

As at 10.01 am, shares in DBS were trading flat at $29.