RHB raises DBS earnings forecasts, but says positives are priced in

DBS ATM in SingaporeDBS ATM in Singapore

DBS’ first-quarter earnings beat expectations, leading to forecast increases, but those positives are already priced in to the stock, RHB said in a note on Wednesday.

RHB kept a Neutral call on the stock.

“Whilst DBS is a beneficiary of future increases in the Singapore Interbank Offered Rate (SIBOR), we believe the positives have been largely priced in,” RHB said. It noted the stock is trading at almost 1.6 times price-to-book-value, will above the historical average of 1.17 times.

The stock could also be susceptible to economic news flow, it noted.

“Whilst there is a share price upside potential, any news flow on delays to the Federal Funds Rate (FFR) hike could lead to share price weakness,” it said.

On Monday, DBS reported first quarter net profit surged 26 percent to a record S$1.52 billion. Its net interest income rose 16 percent on-year to S$2.13 billion on higher loan volumes and its net interest margin (NIM) increased by 9 basis points to 1.83 percent on higher interest rates, DBS said.

RHB said it expected NIM to widen further ahead and it raised its NIM estimate for the full year to 1.85 percent, from 1.82 percent to factor in wider NIMs in Hong Kong and Singapore. RHB increased its 2018 net profit forecast by 6 percent to S$5.67 billion, mainly on the higher NIM assumption.

It also raised its long-term return on equity (ROE) assumption to 12.9 percent from 12.7 percent on the improving NIMs in Singapore and Hong Kong. That helped to boost its target price to S$29.60 from S$27, on an ex-dividend basis.

DBS shares ended Wednesday down 0.75 percent at S$30.61, after touching a fresh record high of S$31.28 intraday.