In a Thursday report, analyst Leng Seng Choon says, “Given DBS’ higher earnings sensitivity (versus peers), at the lower Fed Fund Rate (FFR), DBS is the least preferred amongst Singapore banks.”
On Mar 3, FFR was cut by 50 basis points (bps) to the upper bound of 1.25%, causing 3-month SIBOR to sink to the current 1.35% – with the market expecting a further drop – compared to February’s average of 1.69%.
During the FY19 results briefing in mid-February, DBS management guided for FY20 NIM to be 7bps narrower versus FY19’s 1.89%, on the assumption of one FFR cut in 2020; the circumstances have since changed.
“We expect FY20 loan contraction. 4Q19 amount of loans expanded 4% YoY, and was up 1% QoQ. Given the recent global macro concerns, we now assume FY20 loan contraction of 1%,” says Leng.
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RHB has also cut DBS’ FY20 net profit estimate by 5% to $5.51 billion, despite its pre-report FY20 net profit being the lowest amongst Bloomberg consensus.
DBS’ management also said on Mar 12 that it expects 2% revenue hit for 2020 is a “moving target”, and also that it does not see the situation improving unless business confidence picks up and demand returns.
“We believe consensus earnings forecasts will trend down over the next few weeks,” adds Leng.
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Meanwhile, DBS’ FY20 yield of about 6% may be high, but RHB reckons that investors are unlikely to be attracted amid the economically weak environment.
The analyst believes that DBS is at a risk of not maintaining its 4Q19 dividend of 33 cents per share.
“Based on our $1.23 per share dividend for FY20, DBS’ yield is about 6%, sharply higher than the 10-year Singapore Government Bond yield of 1.19%, and could partly support DBS share price,” says Leng.
As at 12.10pm, shares in DBS are trading 6.09% lower at $18.97 or 1.01 times FY20 book with a dividend yield of 5.9%.
