“[The bank’s] better leverage offsets [its] slight earnings downgrade on trading income and provisions, marginally offset by higher NIM and opex (operating expenses) discipline,” he writes.
In his Feb 12 (US Eastern time) report, Tan noted that investors are likely to gradually look past DBS’s “soft” 4QFY2025 results and after Fitch’s upgrade of China Vanke’s long-term foreign- and local-currency issuer default ratings (IDR) to ‘CC’ from ‘RD’ after the completion of the distressed debt exchange (DDE).
The sharp non-interest income weakness is also likely “idiosyncratic” to DBS due to the bank’s active hedging policy.
Ahead of the other two banks’ results, Tan believes Oversea-Chinese Banking Corporation (OCBC) is likely to see better non-interest income trends due to fewer loan-related issues, while United Overseas Bank (UOB) is expected to reduce its fee expenses. UOB is slated to release its results on Feb 24, and OCBC will announce its results on Feb 25.
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UOB is also likely to focus on its non-performing loan (NPL) formation, although the bank needs to see “better growth” in wealth to drive a meaningful re-rating, Tan adds.
At OCBC, the analyst favours the bank’s integrated wealth proposition. Its sharpened focus on growing non-interest income in recent years likely contributed to higher-than-expected non-interest income in 2QFY2025 and 3QFY2025. This included initiatives such as cross-selling Great Eastern’s products to OCBC customers, developing higher-margin Great Eastern projects targeting high-net-worth wealth propositions, identifying revenue growth gaps, and launching a digital gold and silver trading platform in November 2021, likely boosting wealth fees amid price volatility.
As such, Tan expects OCBC to reallocate share buybacks, implying a FY2026 payout ratio of 60%.
See also: RHB's Jaiswal raises target price for SGX to $19 following EDQP boost and capital workgroup
Following DBS’s earnings announcement on Feb 9, Tan, after discussions with investors, sees the banks’ NIMs stabilising with “upside bias” as funding costs get repriced, especially in US dollars (USD). He estimates DBS’s and OCBC’s loan-to-deposit ratios (LDRs) at 50%, and UOB’s at 56%.
With Singapore raising its GDP forecast, the analyst anticipates better loan prospects this year. He also expects moderated deposit growth, with the easing of maturing Treasury bills (T-bills) “reduc[ing] further flush to liquidity.” Some investors also expect OCBC and UOB to classify commercial real estate (CRE) accounts with their Hong Kong/Chinese developers.
Singapore banks preferred over SGX
Despite optimism over the Equity Market Development Programme (EQDP) and the $1.5 billion boost announced in Budget 2026, Tan maintains that Singapore Exchange (SGX) is less attractive compared with local banks. While the exchange is expected to benefit from the measures, he retains his “sell” call on the bourse, noting that its 12-month forward P/E now trades at 28 times—close to the Hong Kong Exchange (HKEX) and above the JEG multiple.
However, Tan has increased SGX’s target price to $16 from $14.90, implying a 12-month forward P/B of 25 times, or 1 standard deviation (s.d.) above the mean. The new target price factors in SGX’s new securities daily average value (SDAV) of $1.6 billion.
Tan has a “buy” call on DBS and OCBC, a “neutral” call on UOB, and has also increased his target price for OCBC to $24.90 and UOB to $39, up from $20.30 and $33.70 previously. These updates follow corrections from database errors that were discovered.
As at 11.39am, shares in DBS, OCBC and UOB are trading at $56.90, $21.10 and $38.36 respectively. Shares in SGX are trading at $18.02.
