Complete Property Market Updates of Singapore

June 4, 2008

DBS emerges as most resilient local bank

Filed under: Financing,General — Propertymarketupdates @ 4:22 am

THESE are not the best of times for banks, but DBS Group Holdings can at least claim that it has emerged as the most resilient of the three local players this week.

On many criteria – from share price to valuation – it held up best when all three filed their first-quarter results.

While they all delivered numbers largely in line with forecasts, their shares, which had enjoyed a fortnight of relative calm, were bruised after a rally ended on Tuesday.

Investors, unnerved over how banks would fare amid a period of slow economic growth, pocketed profits.

While DBS shares fell 1.28 per cent for the week, they came off relatively lightly compared with OCBC Bank – down 1.89 per cent – and United Overseas Bank (UOB), which retreated 3.47 per cent.

DBS, which posted a smaller-than-expected 2 per cent drop in earnings to $603 million, closed unchanged yesterday at $19.98.

Two analysts singled out the bank for a thumbs up, with research reports maintaining ‘buy’ calls, while downgrading UOB and OCBC to a ‘neutral’ from a ‘buy’ on concerns over easing loan demand.

‘We believe the market has been cautious towards DBS, as it is the prime casualty of falling rates and also because of concerns over the performance of its large Treasury division in these tough markets,’ said UBS analyst Jaj Singh in a report yesterday.

‘We believe the lower rates are fully priced in, and that there is scope for improvement with loan spreads widening, while an improvement in capital markets in recent weeks suggests the worst is over for Treasury earnings.’

Citigroup analyst Robert Kong also tipped DBS as the most promising of the banks. He said that while last year’s 25 per cent loan growth was unlikely to happen again, there were indications that double-digit loan growth would be achieved this year, and there was still room to improve margins.

Valuations of DBS also seem more attractive. According to UBS, DBS is trading at 12.5 times its 2008 earnings. This is low compared with 14.7 for UOB and 15.3 for OCBC.

Its share price is down 3.96 per cent this year, while OCBC is up 6.39 per cent and UOB has gained 2.31 per cent.

This indicated an upside potential for DBS, but UBS cautioned that such a potential for banking stocks was limited.

It said a higher valuation premium would require earnings forecast upgrades or a dramatic improvement in the global economy, neither of which was likely to happen in the near term.

Source : Straits Times – 10 May 2008


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