CGSI upgrades to ‘add’
CGS International analysts Tay Wee Kuang and Lim Siew Khee have upgraded their call to “add” from “hold” as they see DBS’s yield becoming more attractive with the bank’s capital return initiative. The initiative is also likely to lift the bank’s long-term return on equity (ROE), which they believe is sustainable due to the bank’s excess capital of $7.73 billion as of the 1QFY2025.
With this, the analysts have increased their ROE assumption for their Gordon growth model (GGM) to 18% from 16.5%, which translates to a higher target price of $47.90 from $43.10 previously.
In their May 9 report, the analysts also note DBS’s “confident guidance” despite the uncertain outlook.
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“During its analyst briefing, management shared that its net fee and commission income, especially for wealth management and loan-related fees which reached a record high in 1QFY2025, remained robust in April, with continued inflow of net new money (1QFY2025: +$3 billion) for its wealth franchise as well as a healthy pipeline for non-trade corporate loans (1QFY2025: +3% q-o-q),” Tay and Lim write.
However, they note that the spillover effects from the trade tensions between the US and its trading partners could hinder growth in the second half of the year.
That said, the analysts see that DBS’s management overlay of $2.6 billion of its $4.16 billion in general provisions (GPs) as at the end of the quarter is “ample enough” to cater to a potential “stress scenario”.
Despite the higher-than-expected results, the analysts have maintained their FY2025 - FY2027 estimates as they see that the quarter is traditionally a seasonally stronger one.
PhillipCapital, Maybank, UOB Kay Hian and Morningstar upgrade target prices
PhillipCapital analyst Glenn Thum has maintained his “accumulate” call with a higher target price of $44.50 from $43.90 as he increases his FY2025 earnings estimates by 2% from higher fee income and lower expenses.
Thum’s new target price assumes an FY2025 P/B multiple of 1.79 times and an ROE estimate of 17.8%.
“We expect non-interest income to be the main growth driver, as heightened volatility will benefit trading income and continued wealth management growth from the shift in investor sentiment and assets under management (AUM) inflows,” he says.
While the analyst believes the higher provisions and global minimum tax would impact DBS’s patmi in FY2025, DBS’s capital return initiative, which includes a 24-cent annual increment, a 15-cent capital return dividend per quarter, a $3 billion share buyback, and a 7% dividend yield, is “attractive”.
DBS’s 1QFY2025 adjusted earnings of $2.9 billion were in line with Thum’s estimates. The analyst highlighted the higher net interest income (NII), wealth management growth and high markets trading income as positives while he flagged the higher allowances and expenses as a negative.
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Maybank Securities analyst Thilan Wickramasinghe kept his “hold” call as DBS’s potential for “sizeable” earnings upgrades amid “poor macro visibility” is limited despite its strong platform.
The bank’s results reflected an “operational resilience” with higher wealth management and an increase in net new money.
“DBS’s strong wealth platform, supported by technology investments and new relationship manager hires should continue to attract inflows – especially amidst global volatility,” the analyst notes in his May 8 report.
At the same time, falling funding costs and strong liquidity, as seen in DBS’s current account savings account (CASA) of 52.6%, compared to 1QFY2024’s 46.3%, is “enabling more trading opportunities”.
Despite the lower net interest margins (NIMs), NII held up with excess liquidity put in high quality, low yield instruments and loan substitutes.
“Management claims 50% of the Singapore dollar (SGD) book is hedged and one third of the loan book is on fixed rates. This should moderate NIM decline,” Wickramasinghe notes.
While the analyst has raised his earnings per share (EPS) estimates for FY2025 to FY2027 by 3^ to 6% to reflect DBS’s strong trading and fees, he remains “more cautious” as management announced that it is sticking to its guidance that was issued before Liberation Day.
That said, he notes that the bank’s commitment to capital returns and its “safe haven” status provides a cushion for any downsides to balance sheet risks.
UOB Kay Hian analyst Jonathan Koh has also maintained his “hold” call but with a higher target price of $40.90 from $40 previously as DBS’s earnings came above his net profit forecast of $2.75 billion.
“Traditionally, DBS has the highest beta among the three local banks. Its dividend payout ratios of 82% for 2025 and 87% for 2026 are also more stretched compared with peers,” says Koh in his May 9 report. “At the moment, we cannot rule out DBS embarking on acquisitions in Malaysia or Indonesia, which might be untimely due to ongoing external uncertainties.”
Amid the positives such as the “spectacular surge” in wealth management fees, strong capital adequacy ratio as well as its commitment to payouts, Koh sees “potential misses” for the bank’s loan growth guidance.
“Rules-based world order has shifted to a multipolar world. Trade and payment links are being reconfigured. Tariff uncertainties could result in a pause in client activities. While maintaining its guidance on loan growth at mid-single digit, management cautioned that new loans could be muted in 2H25 as the trade conflict rages on. DBS might not be able to achieve the target of mid-single-digit loan growth as the outlook is shrouded in great uncertainties,” he points out.
To this end, Koh still sees DBS reporting higher earnings in FY2025 and FY2026 as he raises his forecasts by 1.4% and 0.4% respectively due to stronger growth in fee income.
Morningstar’s senior equity analyst Michael Makdad has kept his “four star” rating with a higher fair value estimate of $48 from $47 on DBS as the positive effects from his valuation on higher dividend forecasts outweighs any negatives from cuts in his earnings estimates.
“Previously, we assumed an average dividend payout ratio just above 50% (excluding the 15-cent quarterly
special dividends for capital adjustment). Management said it now envisions a 24-cent annual increase in ordinary dividends, provided ROE stays within the 15%-17% range,” Makdad writes in his May 8 report.
However, the analyst lowered his earnings estimates to reflect a five-basis-point increase in credit cost assumptions, which is in line with the assumptions made for HSBC and Standard Chartered. Makdad also foresees a nine-basis-point drop in DBS’s NIM this year.
OCBC and RHB keep ‘buy’ calls and target prices at $50 and $47 respectively
OCBC Investment Research’s Singapore strategist Carmen Lee has maintained her “buy” call and fair value estimate of $50 as DBS’s lower 1QFY2025 results were within her estimates.
“As expected, higher allowances in 1QFY2025 [were] due to an uncertain outlook and potentially slower economic growth,” Lee writes in her May 14 report.
In her view, Lee is recommending investors to “keep calm” as the bank’s well-capitalised book and healthy balance sheet should better position it to ride out the current uncertainties.
The volatility and current trade tensions is “unlike” the Global Financial Crisis (GFC) or the Asian Financial Crisis (AFC) in 2008 and 1997 respectively and Lee does not see DBS’s earnings to be “severely impacted” as it was during the “crisis periods when aggressive allowances impacted profitability”.
“In addition, the attractive yearly payouts should continue to provide good price support,” she says.
RHB Bank Singapore’s research team has also maintained its “buy” call and target price of $47 as DBS’s 1QFY2025 results were in line with expectations.
“Positively, while the impact from US tariff policies are still uncertain, DBS does not think it would derail its capital returns and dividend commitments – our key thesis for the stock,” the team writes.
Shares in DBS closed 50 cents lower or 1.11% down at $44.60 on May 16.
