Goldman Sachs upgrades DBS to Buy from Neutral

DBS signage at the DBS Marina Regatta dragon boat race on 2 June 2019.DBS signage at the DBS Marina Regatta dragon boat race on 2 June 2019.

Goldman Sachs upgraded DBS to Buy from Neutral, citing its attractive yield and reasonable valuation.

“DBS’s share price has fallen 11 percent from its peak in April this year as the stock has become less favored in a more dovish rate environment and aid slowing GDP in the region,” Goldman said in a note Tuesday. “Despite these concerns, our estimates still see DBS stacking up well against ASEAN peers from a combined book value growth and yield perspective.”

After the recent share performance, DBS has an expected dividend yield of 5.2 percent for 2020, with scope to increase the per share payout further over the next three years, Goldman said.

Goldman forecast a 5.2 percent dividend yield for 2020, the bank’s highest since the financial crisis and third highest among the Southeast Asian banks under its coverage.

“We expect robust dividend yields to provide support to share prices in a low-yield environment,” Goldman said.

Goldman said it expected DBS would deliver book value compound annual growth rate of 6 percent through 2021. The book value growth, coupled with a dividend yield over 5 percent, puts the bank on par with the growth rate of bank in emerging economies such as Thailand and the Philippines, Goldman said.

The valuation of DBS’s shares is “attractive” at 1.25 times price-to-book ratio, compared with its historical median of 1.15 times since 2010 and peers UOB and OCBC averaging at 1.1 times, Goldman said.

The investment bank lowered its earnings per share forecasts for 2019, 2020 and 2021 by 0.1 percent, 0.3 percent and 1.5 percent, respectively, on expectations for net interest margins and loan growth amid weak macro conditions.

But it raised its target price to S$30.20 from S$28.30 on higher dividend growth.

Shares of DBS were up 1.18 percent at S$25.67 at 4:41 P.M. SGT.

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