DBS Q4 Earnings Spark Divergent Views from Brokerages
DBS’ fourth-quarter earnings for the period ending 31st December 2022 have elicited varied responses from analysts, despite the bank’s record profits. UOB Kay Hian (UOBKH) raised its target price to S$45.80, up from S$45.35, reflecting a 2% increase in earnings forecast for FY2023, driven by lower specific provisions. This target is based on a price-to-book ratio of 2.03 times for FY2023.
RHB Research also upgraded its target price for DBS to S$42, from S$41.10, increasing its earnings projections for FY2023 to FY2024 by about 4% to account for reduced provisions. Additionally, RHB applied a 4% premium for the bank’s environmental, social, and governance (ESG) factors.
Conversely, CGS-CIMB lowered its target price to S$35.70 from S$36.50, citing a reduction in earnings per share estimates for FY2023 to FY2024 by up to 7%, due to anticipated funding cost pressures. This reflects concerns over the bank’s ability to continue expanding its net interest margin (NIM).
UOBKH analyst Jonathan Koh maintained a “buy” recommendation on the stock, highlighting the bank’s stronger-than-expected net profit, driven by significant NIM expansion. Koh believes that DBS will continue to see NIM growth, having already increased by 62 basis points year-on-year to 2.05% in Q4 FY2022, thanks to higher interest rates.
Koh also expressed confidence in DBS’ recent growth in treasury income and investment gains, alongside stable asset quality and a record-high return on equity. Koh pointed out that many high-net-worth individuals and family offices are seeking to deploy funds for better returns, noting that wealth management is rebounding.
RHB, which also maintained a “buy” stance, highlighted NIM expansion, strong asset quality, and special dividends as key positives for FY2022. With credit costs now expected to be lower than initially forecast, RHB anticipates a 27% increase in earnings for FY2023, which could drive the stock price higher.
However, RHB expects weaker NIM in DBS’ treasury markets segment, contrasting with UOBKH’s expectations. CGS-CIMB, citing ongoing funding cost pressures, anticipates NIM stabilising in FY2023 and maintained a “hold” rating on DBS.
CGS-CIMB analysts believe that rising funding costs, driven by an outflow from current and savings accounts into higher-yielding instruments like Treasury bills, could limit further NIM expansion. They also noted that any benefits from wealth management could take time to materialise, as higher interest rates persist. Consequently, CGS-CIMB lowered its NIM forecast for DBS to 2.17% for FY2023, down from 2.28%.
Despite these concerns, analysts believe that key trends, such as the movement of wealth clients’ funds amid market volatility and momentum from China’s reopening, could help DBS achieve a cost-to-income ratio below the management’s target of 40% for FY2023.
Shares of DBS closed at S$35.06, reflecting a decline of 0.74% or S$0.26 on Tuesday.
