SINGAPORE (Mar 15): RHB expects the Singapore Interbank Offered Rate (Sibor) to increase in line with the Federal funds rate (FFR) hikes.
This given the Monetary Authority of Singapore (MAS) is likely to stick to its monetary stance in its April policy statement.
However, DBS is not likely to gain from Sibor increases, as positives for the stock have largely been priced in, says RHB in a Thursday report.
"This is evident from the 50%-plus share price rise over the past 12 months," says analyst Leng Seng Choon.
The market expects the FFR to be hiked three or four times this year. This is a more aggressive stance when compared with the market’s view a few weeks back.
The next Federal Open Market Committee (FOMC) meeting is scheduled for Mar 20-21 and market expectations are for a hike of 25bps.
Leng says an examination of the USD’s three-month Libor over the three-month Sibor over the past 15 years showed that the average spread over this period was +47bps. Currently, the spread is 73bps given the three-month Libor at 2.11% and the 3-month Sibor at 1.38%.
"If we assume a reversion to mean, there is scope for the three-month Sibor to trend up further," says Leng. This is despite the 26bps rise in Sibor since end Sep 2017.
Leng is therefore forecasting FY18, FY19 and FY20 Net Interest Margins (NIMs) of 1.82%, 1.88% and 1.96% respectively. This is an uptrend from 2017’s 1.75%. "We believe a rising Sibor would contribute to this uptrend," says the analyst.
RHB is raising the target price of DBS to $27 from $25 on an ex-dividend basis, assuming average ROE rise to 12.7% from 12.1% over the next few years. The new target implies an 1.39 times FY18 book value, higher than the five-year historical average of 1.15 times.
The stock is going ex-dividend on May 3 for the final and special dividends of 60 cents and 50 cents.
As at 11.41am, shares in DBS are down 42 cents at $28.70 or 13.9 times FY18 earnings.
