Analysts mixed on DBS’s prospects with 'sell', 'neutral' and 'buy' calls after 3QFY2023 results

The analysts' target prices range from $29 to $44.28.

Analysts are remaining mixed on DBS Group Holdings’ prospects after the bank announced its results for the 3QFY2023 ended Sept 30 on Nov 6.

For the 3QFY2023, DBS reported a net profit of $2.63 billion, 18% higher y-o-y while its 9MFY2023 net profit rose to a record $7.89 billion, 35% higher y-o-y.

At the bank’s results briefing, CEO Piyush Gupta said that the bank is likely to post a record set of net profits for the FY2023. He is also confident that it will cross the $10 billion mark.

Citi Research analyst Tan Yong Hong has kept his “sell” call with an unchanged target price of $29 even though the bank’s 3QFY2023 earnings surpassed his expectations. The earnings beat came mainly from better fees and trading income amid higher credit costs.

In his view, the key negative factor is from the bank’s lower current account savings account (CASA) ratio, which stood at 52% as at Sept 30, down from 56% before.

While DBS’s management shared that it expects stable profits for the FY2024, Tan sees some risks to the expectation of stable net interest income (NII) and double-digit growth in non-interest income.

“Similar to what we have seen this year so far, management has revised guidance on a quarterly basis, which could repeat depending on the global macro trajectory. Overall, we see the broad FY2024 outlook as neutral and earnings upgrades as likely from higher non-interest income but offset by higher operating expenses,” he writes.

“Management retained its view of excess capital of $3 billion or $1.20 per share but timing of distribution could be further blurred by any IT disruption,” he adds. “While our neutral view on the sector is predicated on a US recession starting 2QFY2024, near term, banks could be supported by yields. Hence, we prefer to be positioned in banks with a clearer pathway to higher dividends, and recently opened a 90-day positive catalyst watch on Oversea-Chinese Banking Corporation or OCBC.”

Based on DBS’s guidance for the FY2023 and FY2024, Tan expects the consensus to raise their FY2024 earnings estimates by low-single digits.

In his view, DBS’s net profits for FY2024 should broadly be at the same levels of FY2023’s. The bank’s NII for the next year is likely to remain stable y-o-y. Fee income momentum is expected to be sustained by wealth and cards while profit before allowances in FY2024 is expected to come in higher with mid-single digits income growth and high-single digits expense growth. The bank’s total allowance is also likely to come in around 17 basis points (bps) to 20 bps of loans.

The Singapore research team at RHB Bank Singapore has kept its “neutral” call with an unchanged target price of $34.70 as DBS’s 3QFY2023 results stood in line with a sequential rise in loan provisioning damping better operating income.

Based on the bank’s estimates, the team sees that its net interest margin (NIM), at 2.19% in the 3QFY2023, is likely to have peaked. That said, it is more optimistic on DBS’s non-interest income with both fee and other non-interest income expected to reach double-digit growth in FY2024.

“Fees would be supported by wealth (good demand for fixed income products) and card fees (helped by Citi Taiwan),” says the RHB team.

Maybank Securities analyst Thilan Wickramasinghe has kept his “buy” call on the bank but with a lowered target price of $37.81 from $39.36 previously as he sees growth peaking.

“While margins seem to have peaked, higher for longer rates should continue to support NII, [at the same time] green-shoots in wealth management could boost non-interest income,” he writes.

"A high base effect, slower China and global growth are likely to slow earnings momentum going forward. Nevertheless, dividends should remain well supported giving [over] 5.6% yield in the medium term,” he adds.

That said, Wickramasinghe has raised his FY2023 – FY2024 earnings estimates by 1% to 2%. His target price is based on his forward earnings of FY2024 but it has also factored in a slower mid-cycle growth.

UOB Kay Hian analyst Jonathan Koh is the most optimistic on DBS with an unchanged “buy” call and a higher target price of $44.28 from $43.95 previously.

For Koh, DBS’s 3QFY2023 results stood slightly above his expectations as NIM expanded and NII grew and in spite of the one-time integration costs of $40 million for Citibank Taiwan.

Due to the good set of results, Koh has raised his earnings forecast by 0.6% for the FY2023.

His target price is based on DBS’s FY2024 P/B multiple of 1.8x.

As at 3.22pm, shares in DBS are trading 5 cents lower or 0.15% down at $33.28.

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