What is the news?

DBS will be announcing its 4Q12 results on 6 Feb 2013. Since the previous results season, where we maintained our “Neutral” call on DBS, share price has increased in-line with the STI, before declining on the announcement of further p r operty cooling measures.

How do we view this?

We are more positive on DBS since the last results season due to the following reasons:

• Since our economists upgraded their outlook on China in the report dated 22 Oct 2012, the domestic market has improved, while data on retail sales growth and PMI has surprised on the upside. The gradually improving economy has led to an increase in trade imports. We expect continued growth in trade flows, especially imports, in FY2013. With a significant presence in China, DBS is well positioned to benefit from the expected increase demand for trade financing and other transaction banking services. Specifically, DBS is able to leverage its significant presence in both China and a few ASEAN countries such as Indonesia, providing large and medium SMEs with the expertise required to trade between the two countries.
• With the improvement of the China economy, we are also more positive on the spillover effects that this could have on the ASEAN region. An increase in demand from China, coupled with the relatively cheaper labor in ASEAN, could lead to an increase in transaction banking services. New wealth generated from businesses may drive growth in wealth management.
• With the bank expected to announce FY2012 final dividend of S$0.28 per share, the attractive dividend yield of 3.9% is expected to support any potential downward movement of current share price.

Investment Actions?

We roll forward our forecast, and introduce our FY14 estimates. Based on our FY13E BVPS of S$13.92, and an unchanged P/B of 1.16X, we derive a target price of S$16.10. Based on current share price and our more positive outlook, we upgrade our rating to "Accumulate".

Source: PhillipCapital Research - 21 Jan 2013