Analysts at RHB Bank Singapore have maintained “buy” and increased their target price on DBS to $41.20 from $38.90 previously following a recent meeting with the bank’s management.
In their July 18 report, the analysts note that they expect a softer 2QFY2024 reporting quarter for DBS. This is mainly due to the high non-interest income (non-II) base previously — specifically other non-II, which jumped 43% q-o-q aided by non-recurring gains from foreign exchange hedges.
From the discussions, RHB analysts understand that the positive wealth management momentum seen in 1QFY2024 appears to have been sustained, which would be an overall positive for fees.
“As for the net interest income (NII) line, management had previously mentioned that the 2QFY2024 loan pipeline was not as robust as 1QFY2024 and thus, we think NII could be muted as well. Similarly, we are not expecting any major movements in net interest margin (NIM),” they add.
Given the operating environment does not appear to have changed much, the analysts expect asset quality to remain under control. They add that they do not discount the possibility that the bank’s special provisions would continue to trend below guidance in 2QFY2024.
RHB expects DBS to announce an interim dividend per share (DPS) of 54 cents, unchanged from 1QFY2024 but up from the 43.6 cents in 2QFY2023. They assume the step up in interim DPS to only take place in 4QFY2024, unlike last year when there were two step ups.
“Also, we have not factored in any capital management initiatives but even then, its dividend yield based on its commitment to raise absolute DPS by 24 cents annually is sufficient to provide investors with an attractive 6.6% yield for FY2025,” they add.
Overall, the analysts think 2QFY2024 could be an uneventful reporting quarter for DBS. With the onset of the rate cut cycle approaching, the analysts believe the two main areas of investor interest would be on forward guidance on the impact of rate cuts and updates on capital management initiatives.
Pending the upcoming 2QFY2024 results in August, RHB leaves its earnings forecasts unchanged. The analysts project FY2024 patmi to grow by 3.5% y-o-y on the back of a 6% y-o-y rise in operating income — both broadly in line with the management’s guidance. Beyond that, earnings growth is projected to stay muted at 1%-2% up y-o-y as NIM pressure from rate cuts kick in.
As at 11.38am, shares in DBS are trading 42 cents lower or 1.12% down at $36.86.
