Analysts from Maybank Securities and RHB Bank Singapore have increased their target price estimates for DBS Group Research to above $51 after the bank posted record earnings for the 4QFY2024 ended Dec 31, 2024, on Feb 10. Fellow analyst Carmen Lee from OCBC Investment Research (OIR) increased her estimate to $50 from $43.60 just hours after the bank's results release.
RHB’s Singapore research team kept its “buy” call with a higher target price of $51.20 from $44.70 previously after DBS’s 4QFY2024 results stood in line with the team’s expectations. DBS’s FY2024 patmi of $11.3 billion stood at 102% of RHB’s full-year estimates while the final dividend of 60 cents was also “expected”.
“The key highlight was management providing clarity on the quantum of excess capital ($8 billion) and reaffirming its commitment to return this to shareholders over the next three years – starting with the announcement of a capital return DPS [dividend per share] of 15 cents [per] quarter for FY2025 totalling $1.7 billion,” the RHB team writes in its Feb 11 report. “This is above its earlier share buyback programme and 24 cents increase in ordinary DPS this year.”
Following the bank’s results, the RHB team has increased its FY2025 and FY2026 patmi estimates by 3% and 3%. That said, the larger change is in the team’s higher FY2025 estimate, which it now pegs at $3.06 from $2.46 after including the capital return dividend.
RHB’s new target price is based on a lower cost of equity (COE) assumption and includes a 2% environmental, social and governance (ESG) premium.
During the briefing, DBS noted that its non-performing loans (NPLs) from Hong Kong were on the rise but it wasn’t too worried, since their exposures are mainly secured with loan-to-value (LTV) ratios of 50%. Market clearing prices were also higher. The bank has also been reducing its Hong Kong exposure and it has $2.4 billion in overlays to buffer against asset quality issues.
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The bank also expects to see two rate cuts, down from four, although the impact won’t be too material to its bottomline in FY2025. In addition, DBS guided for a net interest income (NII) sensitive of $4 million per basis point (bp) change in rates, but this could rise to $6 billion to $7 million per bp by the end of 2025 as its current account savings account (CASA) grows.
Although the bank has further fixed rate assets up for repricing this year, yield pickup should not be significant, says the RHB team.
Maybank analyst Thilan Wickramasinghe has also kept his “buy” call on DBS as the bank’s FY2024 results surpassed his full-year estimates.
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Like the team at RHB, Wickramasinghe has higher target price of $51.37 from $46.91, which is the highest among the analysts featured here.
“The succession of the new CEO is ensuring stability, while also increasing focus on growing high ROE [return on equity] segments of the group. Raising operational efficiencies through integrating AI [artificial intelligence] and leveraging DBS’s strong platform is another priority,” Wickramasinghe observes. “All this should increase DBS’s sustainable ROE by [around] four percentage points going forward.”
Other points of note include the team’s priority to optimise technology to drive operational efficiencies and its seeing significant client opportunities in the Johor-Singapore special economic zone (JS-SEZ). “Hence, a larger presence in Malaysia beyond wholesale banking (where lending is mostly [in] US dollars) is of interest.”
On DBS’s capital returns, Wickramasinghe estimates that the bank’s earnings could grow at a compound annual growth rate (CAGR) of just 1% from FY2025 to FY2027, but its dividends could expand at 7%, thereby delivering yields of over 6.5% from its returns. “All this justifies a higher valuation, in our view.”
“This is in addition to a further $3 billion in share buybacks, which, if cancelled, can uplift [DBS’s] EPS [earnings per share] by [around] 2%, we estimate,” he writes.
In addition to his higher target price, Wickramasinghe has increased his FY2025 to FY2026 dividend estimate by 14% to 22%.
UOB Kay Hian downgrades to ‘hold’
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Analysts from Citi Research and UOB Kay Hian have increased their target prices on DBS to $49.80. Citi’s Tan Yong Hong had a previous target price of $49.30 while UOB Kay Hian’s Jonathan Koh’s target price was previously at $49.50.
In contrast to his peers, UOB Kay Hian’s Koh has downgraded his call to “hold” from “buy” even though DBS’s 4QFY2024 net profit came in line with his estimates.
However, he has increased his earnings forecast for FY2025 by 4% due to a steadier net interest margin (NIM) estimate of 2.05% from 1.97% previously. The higher earnings forecast is also due to expected higher non-interest income during the year.
Koh’s target price is based on 2.07 times DBS’s FY2025 P/B derived from the Gordon Growth Model which includes a ROE of 15.7% from 15.2% previously; cost of equity of 8.5% and growth of 1.8%.
The analyst is recommending investors to “hold” onto the stock for its “attractive” FY2025 dividend yield of 6.6%.
Citi notes yield gap over peers; sees possible reversal of institutional investors into DBS
Meanwhile, Citi’s Tan kept his “buy” call as DBS’s 4QFY2024 results surpassed his expectations on capital returns with four quarters of special dividends in FY2025.
In his Feb 10 flash note, the analyst said he expected to see a positive reaction to DBS’s share price as the bank saw net institutional outflow compared to the net inflows seen in its peers, Oversea-Chinese Banking Corporation (OCBC) and United Overseas Bank (UOB) year-to-date (ytd).
In a separate note on Feb 10 issued after the analysts’ briefing, Tan has kept his FY2025 earnings estimates largely unchanged. That said, he has increased his dividend estimate in FY2025 to $3.06 predicated on a 24-cent lift in ordinary dividends.
The analyst has “conservatively” estimated that DBS will conduct a $3 billion buyback split between FY2025 and FY2026, bringing its total payout ratio in FY2025 to FY2027 to 80% to 90%. The estimate indicates that the bank will still have excess capital for possible mergers and acquisitions (M&As).
“Once capital return dividends and [the] share buybacks are completed, [DBS could see a] cumulative lift to ROE estimated [at around] 1.9%,” Tan writes. “As such our FY2027 ROE [is] revised to 17.2% ahead of management’s 15-17% medium-term guidance (shared in mid-2023). Interestingly DBS (+1.6%) outperformed peers just marginally (OCBC +0.4%; UOB +1.0%), widening dividend yield gap with peers to +1.3% (from ~0.1%).”
These figures could see the reversal of institutional investors back into DBS as the bank’s share buybacks begin and in line with its peers’ capital management policies.
Tan’s target price implies a P/B of 2.1 times on 16.9% of DBS’s FY2025 ROE.
Morningstar ups TP on dividend boost
Morningstar analyst Michael Makdad has also increased his target price to $47 from $46, implying a P/B multiple of 2 times. DBS’s FY2024 ROE of 18% is almost double his assumed cost of equity of 9.5%, Makdad notes.
“While DBS's strong performance was anticipated, the market likely didn’t expect the additional "capital return" dividend, especially after DBS just last quarter announced a $3 billion buyback (2.3% of shares outstanding at current prices),” he writes in his Feb 10 report.
As such, the analyst has also raised his dividend forecasts for FY2025 and beyond, assuming the capital return dividend will slightly increase the base for future ordinary dividends. Makdad assumes that DBS will pay a total dividend of $3 in FY2025 and $2.65 in FY2026.
The higher dividend forecast led to the higher target price, which also factors in the possibility that the $3 billion buyback programme may be completed more slowly.
Makdad has kept his “three star” rating.
DBS may raise dividends at gradual pace, says Bloomberg
DBS may balance increasing its dividends and conducting share buybacks to boost shareholder returns in the next one to two years, predicts Bloomberg Intelligence analyst Rena Kwok.
In a flash note on Feb 10, Kwok estimates that the bank has over $4 billion in excess core capital with its fully-phased common equity tier-1 (CET-1) ratio at 15.1%.
At the results briefing, deputy CEO Tan Su Shan revealed that the bank was seeking “flexibility” in the way it provided returns to its shareholders. Having flexibility in its distributions for FY2026 to FY2027 also meant that the bank could assess what was optimal depending on market conditions.
Aside from the $3 billion share buyback programme announced on Nov 7, 2024, the bank still has another $5 billion to distribute from the total of $8 billion it committed. Assuming that the bank pays an additional 15 cents quarterly per year, this will amount to $1.7 billion per year or around $5 billion in three years.
As at 11.28am, shares in DBS are trading 45 cents lower or 0.99% down at $44.93.
