DBS Group - OCBC Investment 2017-09-14: Time To Buy

DBS GROUP HOLDINGS LTD D05.SI

DBS Group - Time To Buy

In the past two months, DBS’s share price has dropped from a high of S$22.25 to a low of S$20.38 yesterday. This translates to a decline of 8.4%.

In terms of market capitalization, this meant that about S$4.8 billion has been wiped off.
During the same period, the STI has dropped about 3.7%, while the FTSE ST Financial Index also fell 3.7%. (See Straits Times Index Constituents Share Price Performance)
DBS has fallen more than its listed peers OCBC and UOB, which declined by 4.1% and 5.6%, respectively. The higher-than-average decline in its share price performance could be due to market concern over its oil and gas provisions.
As a recap, for its 2Q17 results, DBS saw impairment charges of about S$304m versus S$180m for UOB and S$169m for OCBC.
Recent market jitters over North Korea nuclear test also further added to the cautious tone in the market and share prices generally eased across the board.

While the recent 2Q17 net earnings came in just slight below market expectations, wealth performed well and accounted for 34% of total Fee & Commission Income. With the strong performance of global and regional markets in 3Q17, we expect fee-based income momentum and strong wealth income to continue into 3Q17.
The addition of ANZ will also drive its wealth business in 2018, both in terms of assets under management and revenue.
Recently, DBS has also received in-principle approval to convert its existing India franchise to a wholly-owned subsidiary. This will further deepen its presence in this market. While the operating environment for the Oil & Gas sector is still challenging, the outlook for the local property market has improved recently with more transactions and en-bloc sales.

Although the share price has come off from the high, the stock has still performed well YTD, up 17.5%.
Since our previous report in early August (see report: DBS Group - OCBC Investment 2017-08-04: Outlook Is Healthy, But Some Challengers Remain) , where we recommended re-entry at lower price level, the current price correction has presented an opportunity to accumulate this stock again.
At current price, and with a dividend yield of 3.2% (based on increased dividend payout this year), we are upgrading DBS to a BUY. Our fair value estimate remains at S$22.50.

Carmen Lee OCBC Investment | http://www.ocbcresearch.com/ 2017-09-14

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