CGSI’s call came a day after Maybank Securities’ Thilan Wickramasinghe raised his target price on DBS to $62.79 from $56.15. Wickramasinghe’s target price leads the Street.
Citi Research’s Tan Yong Hong, too, raised his target price to $61.10 on Nov 6, along with a “buy” call.
That said, the reports were issued around DBS’s peak on Nov 6. Since then, DBS shares have come off some 2.5% to trade around $54 on Nov 10.
Like many analysts, CGSI’s Tay and Lim note DBS’s “attractive” expected yield of 5.9% and 6.4% for FY2026 and FY2027. Compared to peers United Overseas Bank (UOB) and Oversea-Chinese Banking Corporation (OCBC), DBS leaders provided the most information on the bank’s capital return and dividend plans.
Speaking at a Nov 6 media briefing, DBS leaders committed to continue with its 15-cent per quarter capital return dividend per share (DPS) until end-2027.
DBS previously committed to a total capital return of $8 billion, of which $3 billion has been allocated for share buybacks over two to three years. To date, DBS has used up almost 12% for the share buyback programme. The balance of $5 billion will be distributed via dividends.
DBS declared a total payout of 75 cents per share for 3QFY2025 ended Sept 30, comprising an ordinary dividend of 60 cents and a capital return dividend of 15 cents.
See also: RHB keeps DBS at ‘buy’, UOB at ‘neutral’ after 3QFY2025 results, running counter to OCBC’s calls
The bank also said a 6-cent step-up dividend is likely to be proposed in 4QFY2025 and will be implemented in FY2026. This effectively means that FY2026 dividends will comprise a normal dividend of 60 cents per quarter; a capital return dividend of 15 cents per quarter till end-2027; and a step-up dividend of 6 cents per quarter.
This translates to a total of 81 cents per quarter in FY2026.
CGSI’s Tay and Lim also pay particular attention to DBS’s provisions, which they think are at “a comfortable level”.
According to management, DBS is currently sitting on $4.1 billion in general provisions (GP), comprising $1.6 billion in baseline provision and $2.5 billion in management overlay.
Following incremental GP of $200 million in 1QFY2025, CGSI notes that DBS wrote back GPs over the past two quarters, albeit at a gradual pace of $17 million and $45 million in 2QFY2025 and 3QFY2025 respectively.
“As such, we believe there is scope for DBS to continue writing back allowances given stabilising macroeconomic conditions, which should enable DBS to deliver credit costs below its FY2026 guidance of 17 to 20 basis points (bps),” say Tay and Lim.
As a result, they cut their credit cost assumptions from 18 bps across FY2025 to FY2027 to 15, 16 and 16 bps respectively over the three years, translating to some $100 million to $150 million in credit cost writebacks over the three years.
For more stories about where money flows, click here for Capital Section
Higher forecasts
DBS shares have gained some 23% year to date, and analysts are catching up with the climb.
Phillip Securities analyst Glenn Thum raised his target price on DBS to $58 on Nov 7, up from $52 previously. Thum remains unchanged with his “accumulate” call on DBS.
RHB Bank Singapore has a “buy” call on DBS with a higher $59 target price as at Nov 7, up from $57.10 previously.
OCBC Investment Research head Carmen Lee, meanwhile, has a “hold” call and $55 fair value estimate, up slightly from $54 previously. Instead, Lee prefers UOB, recommending investors “buy” UOB amid its “price correction” with an unchanged $38.20 fair value estimate.
Going against the grain, Morningstar Equity Research’s Lorraine Tan is the most conservative. She issued on Nov 6 a two-star rating on DBS based on Morningstar’s proprietary five-tier scale, along with a fair value estimate of $48, or some 11% below its current trading price.
“We believe DBS' strength against peers has already been priced in, and shares are now overvalued trading at a 15% premium to our valuation,” writes Lee.
As at 11am, shares in DBS are trading 79 cents lower, or 1.44% down, at $54.19.
