DBS upgraded to Buy by OCBC after stock’s recent correction

DBS Bank branchDBS Bank branch

This article was originally published on Wednesday, 19 June 2019 at 19:49 SGT; it has since been updated with OCBC’s emailed comment.

OCBC upgraded DBS to Buy after the stock dropped around 16 percent over a period of five weeks, and pointed to reasons concerns over potential interest rate cuts may be overdone.

“While the trade tensions between U.S. and China was cited as one of the main reasons, the other reason was the recent decline in interest
rates,” OCBC said in a note Wednesday. It noted the U.S. two-year note yield has fallen to 1.77 percent this month, from around 2.97 percent in November.

The bank also pointed to consensus expectations for around two interest rate cuts from the U.S. Federal Reserve by year-end.

But that shouldn’t necessarily dampen DBS’ results, the note indicated.

While the U.S. federal funds rate was flat for most of 2009-2015, only starting to rise in 2016, DBS posted a net earnings compound annual growth rate (CAGR) of 10.6 percent over the last 10 years, OCBC said.

DBS’ dividend payout also grew by a 7.9 percent CAGR over the same 10 year period, to S$1.20 a share, or 30 Singapore cents a quarter, OCBC added.

That makes DBS, Southeast Asia’s largest bank, “a mega REIT,” with a dividend yield of 4.8 percent based on Tuesday’s closing price for the stock, OCBC said.

OCBC also pointed to a previous research note in April, where it said it would become a buyer of the stock at S$27.50 or lower.

“At current price, it is an opportune time to accumulate the stock,” the bank said. It kept its fair value unchanged at S$29.18.

In an email to Shenton Wire Thursday, OCBC said it previously rated DBS at Hold in an April report, then changed its call to “buy on weakness” in a May strategy report.

Shares of DBS ended Wednesday up 2.54 percent at S$25.43.

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