We adjust our FY09 and FY10 earnings forecasts upwards by 5% and 13% respectively, on an improved NIM and mortgage growth outlook (see Singapore banks: Bettering record margins; Well placed for property upswing dated 22nd Jun. 2009 for more details). We also marginally adjust upwards our market-sensitive income sources, given improved equity and creditmarkets. Our new 12-month target price, which is based on a Gordon growth model (ROE-g)/ (COE-g), is S$14.00, from S$12.80 previously.
Risks to this stock include the prospect of a dilutive acquisition, external shocks or operational risk such as DBS's hedging strategy and management's positioning on the bank's currency mix/duration of its bond portfolio relative to the yield curve. Another downside risk is the possibilty of losses on DBS' trading and investment portfolio, especially given the current volatile investment environment.
OCBC
We adjust our FY09 and FY10 earnings forecasts upwards by 6% and 6% respectively, on an improved NIM and mortgage growth outlook (see Singapore banks: Bettering record margins; Well placed for property upswing dated 22nd Jun. 2009 for more details). We also marginally adjust upwards our market-sensitive income sources, given improved equity and credit markets. Our new 12-month target price, which is based on a Gordon growth model (ROE-g)/ (COE-g), is S$5.80, from S$5.30 previously.
A downside risk is if economic growth significantly slows and asset qualityworsens, resulting in a rise in bad debt expense. Loan growth could also be hampered. An upside risk is if investment markets recover earlier than expected, thus benefitting OCBC's insurance income. Net interest margins could also rise by more than expected as corporate lending spreads rise.
UOB
We adjust our FY09 and FY10 earnings forecasts upwards by 9.8% and 7.3% respectively, on an improved NIM and mortgage growth outlook (see Singapore banks: Bettering record margins; Well placed for property upswing dated 20 Jun. 2009 for more details). We also marginally adjust upwards our market-sensitive income sources, given improved equity and credit markets. Our new 12-month target price, which is based on a Gordon growth model (ROE-g)/ (COE-g), is S$14.50 from S$11.30 previously.
Key downside risks to our valuation and target price are an adverse impact on loan growth and asset quality from a stronger-than-expected slowdown in the global economy and risk that asset quality problems will continue to adversely impact global financials. Key upside risks to our valuation and target price are an earlier-than-expected economic recovery, if regional governments start to guarantee the credit risks of SME loans, and if confidence starts to return to investment markets, with this benefiting market-sensitive income sources
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