DBS, OCBC, UOB: Why are analysts bullish on their stocks?

• DBS Group Holdings Ltd (SGX: D05) share price slipped 0.2% last Friday (09 April 2021)
• DBS is reportedly giving up some office space in Singapore
• Oversea-Chinese Banking Corp Ltd (SGX: O39) fell to S$11.79 per share, while United Overseas Bank Ltd (SGX: U11) gained 0.5%
• CIMB analysts foresee credit growth momentum for the trio
• Trade DBS, OCBC and UOB shares with an IG account

DBS and OCBC shares in the red, while UOB gains

The stocks of Singapore’s Big Three banks gave a mixed showing on Friday (09 April 2021).

DBS shares dropped 0.2% to S$28.65, OCBC lost 0.2% to S$11.79, and UOB rose 0.5% to finish at S$26.07.

Analyst consensus, according to Bloomberg data, comprised 15 ‘buy’ and six ‘hold’ calls for DBS shares with an average 12-month target price of S$29.97. They included JPMorgan, which recommended ‘overweight’ and targeted S$33 on Thursday.

For OCBC, out of 22 research teams, there were 17 ‘buy’ and four ‘sell’ ratings. Their target prices averaged S$12.78.

UOB attracted 18 ‘buy’ and four ‘hold’ recommendations, with an average target of S$12.78, Bloomberg data showed.

Are special dividends likely?

DBS analyst Lim Rui Wen recently opined that the Monetary Authority of Singapore is likely to ease its stance on the dividend cap imposed on Singapore banks, as the trio had preserved sufficient capital.

‘We expect higher dividends for 2021 on gradual relaxation of dividend caps; a two-stage relaxation seems to be a more likely scenario,’ she said.

Banks may adjust their high capital buffers through some special dividends from 2022, subject to asset quality and corporate actions, according to Lim.

She maintained ‘buy’ on OCBC and UOB as recovery plays, with targets of S$12.50 and S$27.60 respectively.

DBS to cut Singapore office space

Southeast Asia’s biggest bank is reportedly planning to surrender about 2.5 floors, or 75,000 square feet, of office space in Singapore’s Marina Bay Financial Centre.

DBS currently occupies more than 12 floors in the building, which houses its headquarters. It will give up part of the space in December 2021, Bloomberg said on Friday morning.

This is in addition to DBS’ plans to give up two of its eight floors in a Hong Kong office tower, as revealed in March. Bloomberg Intelligence analysts said this was a signal of cost prudence ‘rather than a reflection on profitability’, as Hong Kong remains a core market for DBS.

What’s the outlook for the sector?

CIMB analysts reiterated their ‘overweight’ recommendation on Singapore banking stocks, as they observe ‘budding shoots of growth’.

‘Improving business sentiment and ample liquidity conditions set the stage for credit growth momentum,’ CIMB highlighted.

The trio’s system loan growth of 3.7% in January-February 2021 is ‘encouraging’ and a ‘striking contrast’ to the 1.1% contraction in 2020, CIMB’s research team said. ‘We expect the loan growth momentum to head towards about 5% in 2021, on the back of an uneven economic recovery.’

Moody’s Investors Service believes the Big Three have sufficient liquidity buffers to accommodate expected credit growth of around 5% in 2021 and 2022.

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