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

DBS Group - OCBC Investment 2017-09-14: Time To Buy DBS GROUP HOLDINGS LTD D05.SI

DBS Group - Time To Buy

  • Recent drop in DBS share price.
  • Several positive initiatives.
  • Raised to BUY.

Stock fell from recent high of S$22.25 

  • 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.

Positive recent developments 

  • 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.

Upgrade to BUY 

  • 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
OCBC Investment SGX Stock Analyst Report BUY Upgrade HOLD 22.500 Same 22.500