DBS upgraded to Buy by UOB KayHian, forecasting double-digit growth in net interest income

DBS ATM in SingaporeDBS ATM in Singapore

UOB KayHian upgraded DBS to Buy from Hold, advising taking advantage of share price weakness after the stock’s more than 8 percent fall since early August.

“We expect bouts of volatilities in the run-up to the U.S. mid-term elections on 6 November 2018, which would present opportunities to accumulate the stock,” it said in a note on Wednesday.

UOB KayHian was also optimistic on the upcoming third-quarter earnings release.

“Double-digit year-on-year growth in net interest income and a sequential recovery in net trading income have helped DBS cope with the pick-up in credit costs,” UOB KayHian said. “We reckon that third-quarter 2018 results would be satisfactory despite the uncertainties relating to trade conflicts.”

The brokerage forecast 16 percent on-year growth in net interest income in the third-quarter results, due to an estimated 13 basis-point net interest margin expansion and a sequential recovery in net trading income amid increased volatility in regional currencies; it forecast NIM rose 1 basis point on-quarter in the third quarter to 1.86 percent.

UOB KayHian forecast net trading income rose 18.9 percent on-quarter to S$270 million in the third quarter as spreads usually widen on regional-currency volatility.

It estimated third-quarter net profit of S$1.386 billion, up 3.9 percent on-quarter and 72.8 percent on-year after “huge” provisions in the year-ago period for its exposure to the oil and gas sector.

It raised its target price to S$29.50 from S$28.20.

The stock ended Wednesday up 1.03 percent at S$24.49.

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