Here in Singapore, Jonathan Koh of UOB Kay Hian has become more upbeat about banking stocks. He believes they can secure attractive yield spreads. With resilient earnings, strong capital adequacy and disciplined capital management, the banks can sustain their dividend payouts. The Singapore banking sector offers attractive value, with a low P/B of 1.65 times and a high 2026 dividend yield of 4.8%, says Koh.
His top pick is DBS Group Holdings. In addition to upgrading his call to “buy” from “hold,” he has raised his target price to $68.95 from $55.50. Oversea-Chinese Banking Corp (OCBC), meanwhile, is liked by Koh for its focus on trade and investment flows within Asean. It now trades at a “defensively” low FY2026 P/B of 1.45 times. Koh has similarly upgraded OCBC from “hold” to “buy” call, along with a higher target price of $23.65 from $20.22.
Koh, in his Jan 7 note, notes that DBS has guided that FY2026 net interest income will be “slightly below” the previous year, but expects high-single-digit growth in non-interest income, led by wealth management. Overall, net profit for FY2026 will be “slightly” below FY2025’s.
The bank is expected to hike its quarterly dividend by another 6 cents to 66 cents starting in 4QFY2025. “Management has stress tested the impact of stepping up quarterly DPS to 66 cents on its balance sheet. DBS is comfortable with Common Equity Tier 1 capital adequacy ratio dipping below 14% as it is still within its preferred operating range of 12.5%–13.5%,” says Koh. His revised target price of $68.95 is based on 2.81 times FY2026 P/B.
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For OCBC, loan growth is expected to be in the single digits for 2025. Net interest income is expected to decline by mid-to-high single digits, and its cost-to-income ratio is expected to come in at low 40%. Its dividend payout ratio is set at 60% on a full-year basis, consisting of a regular dividend of 50% and a special dividend of another 10%.
With effect from Jan 1, Tan Teck Long has assumed the role of the bank’s CEO. According to Koh, Tan sees room to reap synergies through OCBC’s One Group strategy to enhance cross-selling and integration. The bank will focus on capturing growth from Asean-Greater China trade and investment flows and rising Asian wealth. Koh’s new target price for OCBC is $23.65, based on 1.70 times FY2026 P/B.
