Daiwa downgraded DBS to Hold from Outperform, both as the stock rallied strongly recently and as the banking cycle was entering a negative phase.
“The Singapore banks are probably nearing the peak of the banking cycle (in terms of EPS (earnings per share) growth, NIMs (net interest margins) and favorable asset quality) and that some or all of these indicators may begin to deteriorate in the coming years (although the decline could turn out to be gradual and manageable), we see no reason to accumulate DBS’ shares now, especially given their year-to-date outperformance,” Daiwa said.
“In short, it does not appear particularly cheap or overvalued, in our view,” the investment bank added.
DBS shares are up around 16.5 percent year-to-date.
Daiwa said DBS’ first-quarter results beat its forecast on higher net trading income and lower credit costs, but that was mainly on one-off factors. It also noted that Singapore housing loans declined on-quarter as loan repayments exceeded new loans.
DBS reported Monday its first quarter net profit rose 9 percent on-year to S$1.65 billion as higher interest rates boosted its net interest margin and on strong growth in corporate loans.
Daiwa increased its 2019 earnings per share forecast for DBS by 2 percent on the one-off earnings factors in the first quarter. It also raised its target price to S$27 from S$26.60.
DBS shares ended Thursday down 0.18 percent at S$27.60.