Brokers’ take: RHB upgrades DBS to ‘buy’ as clarity on dividend commitment improves

RHB on Thursday (Feb 8) upgraded DBS to “buy” from “neutral” following higher readability on the lender’s dedication to shareholder returns.

On Wednesday, the financial institution proposed to lift dividend payouts and difficulty bonus shares to extend the tempo of capital returns to its shareholders through the launch of its fourth-quarter outcomes.

DBS chief govt Piyush Gupta additionally expects there to be extra alternatives to return capital to shareholders given the lender’s ample extra capital.

“Its focus on absolute dividend per share (DPS), versus payout, offers investors ‘bond-like coupons’ with yields that are now too good to ignore, in our view,” RHB mentioned.

It additionally mentioned administration’s plan to develop DPS by S$0.24 every year could possibly be sustained for the subsequent two to a few years. There can also be room for capital administration initiatives like share buybacks, RHB famous.

The analysis group has raised its goal on the counter to S$36.10 from S$34.70, which suggests a possible upside of 10.8 per cent from the counter’s final buying and selling worth of S$32.57 as at 11.40 am on Thursday.

Shares of DBS have been up 0.4 per cent or S$0.12 on the time.

DBS’ This fall outcomes additionally aligned with the analysis group’s expectations. The financial institution posted a 3 per cent drop in web revenue of S$2.27 billion for the fourth quarter ended Dec 31, 2023, from S$2.34 billion in the identical interval final 12 months.

The web revenue took under consideration one-time prices from its acquisition of Citigroup’s Taiwan shopper banking enterprise and a S$100 million company social duty dedication. Without these prices, web revenue would have risen 2 per cent on the 12 months.

The financial institution had additionally proposed a better dividend of S$0.54 per share and a 1-for-10 bonus difficulty.

In its analysis mannequin, RHB assumed an FY2024 DPS of S$2.16, which suggests a payout ratio of 63 per cent, primarily based on an enlarged post-bonus share base.

“This translates to a post-bonus yield of 7.3 per cent, which we think is too good to ignore for a large-cap, liquid stock,” RHB mentioned. It famous that decoupling dividends from profitability also needs to assist present draw back assist to share worth.