DBS - Phillip upgrades DBS to Buy from Hold, ups target

Stock Name: DBS
Company Name: DBS GROUP HOLDINGS LTD
Research House: Phillip Securities

Phillip Securities upgrades DBS Group Holdings (D05.SG) to Buy from Hold and raises its target price to $16.98 from $14.55 as it rolls over its valuation model to 2011 forecasts from 2010.

Phillip’s new valuation is based on 2011 9.1% ROE and 1.41 P/BV and the house believes after DBS’ share price fall in recent days (off 2.0% from its S$15.18 year-to-date high on Feb. 7) “there is room for further valuation change should interest rates show signs of trending up.”

It notes 2010 was a better year for the bank than 2009 “for one single reason -- DBS managed to turn in higher non interest income through trading and net gains in financial instruments.”

But it notes despite blistering loan growth of 16% on year, net interest income, which accounts for 64% of earnings, fell 3% on year as NIM fell to 1.84% from 2.02%. “We believe for FY11, that blistering loan growth is not expected to repeat but NIM is also not expected to contract as rapidly either.” Shares are +0.7% at $14.90.