DBS Group - Bonanza From Rights Issues

Tuesday, June 23, 2009

Standing by core customers. DBS Group Holdings (DBS) has benefitted from the slew of rights issues from government-linked companies by securing the lion’s share of mandates in these fund-raising exercises. DBS is the lead manager and underwriter for CapitaLand’s and CapitaMall Trust’s rights issues launched in 1Q09 and CapitaCommercial Trust’s and Neptune Orient Lines’ rights issues launched in 2Q09. By cultivating relationships with core customers in both good and bad times, DBS is well positioned to clinch these investment banking deals when the opportunities arise.

We expect contributions from the rights issues of CapitaLand and CapitaMall Trust to be recognised in 2Q09 and that from CapitaCommercial Trust and Neptune Orient Lines to be recognised in 3Q09. We estimate net commission from investment banking to increase 67.6% qoq to S$28.5m in 2Q09 and taper off to S$19.1m in 3Q09. We fine-tune our 2009 net profit forecast by +0.5% to S$1,492m.

Maintain BUY. DBS is a high-beta play on the eventual economic recovery. Our target price of S$13.83 is based on a P/B of 1.30x and is derived from the Gordon Growth Model (ROE: 10%, payout ratio: 50%, required return: 8% and constant growth: 4%). We have rolled forward our target price based on end-10 NAV/share estimate of S$10.64.


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