DBS shares could cross S$33 in the next 12 months, analysts say

• DBS Group Holdings Ltd (SGX: D05) share price hits S$29.29 as at noon on Wednesday (05 May 2021)
• OCBC analysts increased its fair value estimate on the stock to S$33 from S$29.50 previously
• Maybank, the most bullish of the lot, lifted its target price to S$33.71 from S$29.64
• CIMB reiterated an ‘add’ rating alongside a higher price estimate of S$32.64
• Buy and sell DBS shares with an IG account

DBS stock: Why do analysts see 15% price growth?

Analysts from OCBC, Maybank and CIMB recently raised their target prices on DBS Group shares by over 10% respectively, after the money lender saw its quarterly net profit cross S$2 billion for the first time ever.

OCBC’s equity research team, which had a ‘buy’ call on the stock, increased its fair value estimate to S$33 a share from S$29.50 previously. The target price implies a 1.53 price-to-book ratio.

The analysts noted that DBS’ Q1 2021 net profit had beaten predictions due to ‘stronger than expected trading income, provisions writeback and a recovery in business momentum’.

OCBC also lifted its FY2021 earnings estimates to reflect expectations for stronger non-interest income growth and lower credit costs, in line with DBS’ upgraded management guidance.

Finally, they wrote that while net interest margins should remain stable (at around 1.5%) due to a low rate environment, DBS’ ongoing efforts on various new business drivers bode well for its medium term growth prospects.

Meanwhile, Maybank’s Thilan Wickramasinghe also rated DBS a ‘buy’ alongside a target price of S$33.71, up from S$29.64 previously.

His higher price estimate was predicated on DBS’ ‘potential strong delivery in 2021 earnings’, thanks to Singapore’s improving economic activity as well as North Asia’s recovery.

He raised DBS’ 2021 to 2023 earnings per share (EPS) forecast by 2% to 13%.

‘Better than expected asset quality should also raise upside risks for reserve write backs going forward. Strong capital and accretive strategies for medium-to-long term growth increases higher dividend prospects,’ Wickramasinghe added.

However, he cautioned that a resurgent pandemic in the region, which could lead to a sizable amount of moratoriums in Hong Kong amounting to some S$2.8 billion; as well as expiring government risk sharing loans in Singapore; may continue to keep tail risks high.

What are some potential re-rating catalysts?

Finally, CIMB increased its target price by the most, from S$18.35 to S$32.64, while reiterating an ‘add’ recommendation.

‘Although DBS trades at a premium to peers at 1.4 times FY2021 price-to-book value, we see more value enhancement going forward as its revenue drivers scale new highs,’ the analysts wrote in their latest note.

The analysts also lifted their FY2021 to FY2023 full-year EPS forecasts by 8% to 16%, after factoring in elevated non-II income - primarily wealth and trading - as well as stronger loan growth of around 8% year-on-year in FY2021.

Re-rating catalysts include a lifting of MAS’ dividend cap on banks and a rise in Fed rates, while downside risks include a new wave of Covid-19-related lockdowns.

DBS shares rose over 2.5% to a three-year high of S$30.10 on Friday (30 April 2021), after it published its Q1 2021 earnings.

Q1 2021 net profit doubled from the previous quarter and increased 72% from a year ago to S$2.01 billion, as ‘business momentum accelerated during the quarter’, the group said.

The bank’s board of directors declared a dividend of S$0.18 per share for the quarter.

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