Is DBS worth S$23 a share?

Why did DBS shares fall this week?

DBS Group (SGX: D05) shares opened lower on Wednesday 09 September, following a third straight day of US market sell-offs led by major tech names like Tesla and Apple.

Negative Covid-19 vaccine updates, in which supposed frontrunner AstraZeneca had to pause several large late-stage trials of its experimental coronavirus vaccine due to an unexplained illness in one study participant, also dealt a blow to equity prices globally.

As at 15:10 SGT on Wednesday 09 September 2020, DBS shares are trading at S$20.46 each on the IG platform.

DBS share price prediction: What’s the latest?

Across the board, DBS Group has received a consensus rating of ‘buy’ from 12 out of 20 analysts polled by Bloomberg as of 09 September 2020.

The stock also has a consensus 12-month target price of S$22.96, which represents a 12.2% upside from the last traded price of S$20.46.

UOB analyst Jonathan Koh recently reiterated a target price of S$22.90 and ‘buy’ call on the stock.

He wrote that the bank surpassed expectations in 2020’s second quarter ‘with a vast improvement in CASA (current accounts and savings accounts) ratio and continued expansion of AUM (assets under management)’.

It also has unrealised mark-to-market (MTM) gains of S$1.5 billion in its book to provide a cushion against lower net interest margins in the second half of 2020, Koh added.

On the other hand, CIMB has a ‘hold’ rating on DBS, alongside a lower target price of S$20.46 a share – on par with current prices.

The analysts wrote that while they are optimistic on a pick-up in credit growth across all three banks as GDP recovers, the end of debt moratoriums could potentially ‘deepen asset quality pressures’.

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How does DBS’ dividend estimates compare to OCBC and UOB?

For DBS shareholders, another key point of interest is the expected dividend pay-out over the next two financial years.

As we noted in a recent article ‘Singapore bank dividends: What’s the outlook?’, DBS saw the largest decline in interim dividends among the three Singapore banks in the first half of 2020.

The group proposed a half-year dividend amount of S$0.18 per share, 40% below the amount of S$0.30 paid a year prior.

Under MAS’ new guidelines for dividends per share (DPS) to be capped at 60% of 2019’s total sum, the maximum DPS that DBS can declare for FY2020 would be S$0.738, against FY 2019’s total DPS of S$1.23.

This would equate to a maximum dividend yield of 3.61% for this financial year, based on the bank’s latest share price.

Comparing the three banks, CIMB brokers wrote in August 2020 that they preferred DBS over UOB and OCBC in terms of DPS outlook.

They have their ‘hopes up for a recovery’ in DBS’ full-year dividends for FY2021, as the bank was already confident of sustaining its DPS amount prior to MAS’ directive.

Looking further ahead, JP Morgan wrote that the ‘dividend outcome is reasonably opaque’ across Singapore’s three main banks.

They hypothesised that DBS, OCBC and UOB will continue to pay the current MAS mandated dividends until the end of 2021, with banks focused on earnings sustainability rather than the interests of shareholders.

Read more: Why JP Morgan cut OCBC share price target by 13%

How to trade Singapore stocks with IG

Are you feeling bullish or bearish on DBS Group Holdings and other Singapore stocks?

Either way you can buy (long) or sell (short) the asset using derivatives like CFDs offered on IG's industry-leading trading platform in a few easy steps:

1. Create a live or demo IG Trading Account, or log in to your existing account
2. Enter <DBS Group Holdings Ltd> in the search bar and select the instrument
3. Choose your position size
4. Click on ‘buy’ or ‘sell’ in the deal ticket
5. Confirm the trade