Citi Research analyst Tan Yong Hong remains “neutral” on DBS Group Holdings with a target price of $40.10, given DBS’s exposure to the Adani Group following reports that Gautam Adani has been charged with bribery and fraud in the US.
At DBS’s 4QFY2022 ended Dec 31 briefing held in February 2023, the bank said it has a $1.3 billion exposure to Adani Group.
Of the $1.3 billion, $1 billion relates to cement company acquisition which is debt-free and cash-generating and another $0.3 billion to various operating companies at the project level.
DBS’s management has indicated that these are backed by cash flows which are ring-fenced and DBS has no exposure to Adani’s shares or promoter shares.
Tan notes that based on DBS’s 3QFY2024 results, the bank’s estimated net performing loan (NPL) coverage ratio of 138%, in the worst-case scenario, DBS taps on excess provisions for the full $1.3 billion exposure and NPL coverage ratio falls to approximately 108%.
Additionally, Tan notes that assuming +1% risk-weighted asset (RWA) density will lower common equity tier 1 (CET-1) ratio by 30 basis points (bps) to 14.9%, resulting in minimal risk to dividend per share (DPS).
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As at 3.31pm, shares in DBS are trading 36 cents higher or 0.85% up at $42.57.
