DBS will benefit from rising Singapore rates, but it’s still not a buy: RHB

DBS ATM in SingaporeDBS ATM in Singapore

DBS will benefit from rising Singapore interest rates, but the stock still isn’t a Buy, RHB said in a note last week.

The brokerage said DBS’s net interest margins (NIM) are on an uptrend, and it forecast 2018, 2019 and 2020 NIMs of 1.82 percent, 1.88 percent and 1.96 percent respectively, up from 2017’s 1.75 percent.

“We believe the trend of rising SIBOR would contribute to this uptrend,” RHB said, pointing to three indicators suggesting more SIBOR upside.

RHB said the three indicators are: The federal funds rate is expected to be hiked three to four times this year, LIBOR’s spread over SIBOR is at 73 basis points, sharply wider than the 47 basis point historical average, and the Monetary Authority of Singapore (MAS) was likely to keep its monetary policy steady in its April statement.

RHB estimated that DBS’s net profit would rise 1.1 percent for every 10 basis point rise in SIBOR, a larger sensitivity than the bank’s peers.

That pushed the brokerage’s target price for DBS up to S$27 from S$25. But because that’s still below where the stock is trading, RHB kept a Neutral call.

“Although DBS is likely to gain from SIBOR increases, we believe the positives have largely been priced in,” it said. “This is evident from the 50 percent-plus share price rise over the past 12 months.”

Shares of DBS were up 0.14 percent at S$28.11 at 12:42 P.M. SGT.

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