DBS, OCBC, UOB target prices climb as banks hit record highs

[SINGAPORE] Analysts are ratcheting up target prices for local lenders as their shares and the benchmark Straits Times Index (STI) scaled new peaks.

OCBC ’s mean target price saw the sharpest revision over the past week, with the 17-analyst consensus estimate rising 3.1 per cent to S$20.70. Sentiment remains bullish, with nine analysts holding “buy” or “overweight” calls, six on “hold” and two with “sell” or “underweight” ratings.

The mean target price for DBS also rose 0.8 per cent to S$59.78 across 16 ratings. The house view is split: eight have “buy” or “overweight” calls, five are on “hold” and three are bearish.

For UOB , the consensus target price of 16 analysts rose 2.7 per cent to S$37.26. The majority, 10 analysts, have a “hold” call, while five are bullish and only one has a “sell” rating.

The banking trio drove the STI up 1.3 per cent to close at 4,923.02 on Tuesday (Jan 27). Momentum continued into Wednesday, with DBS climbing to a record intraday high of S$59.55 before closing at S$59.54. OCBC peaked on Tuesday at S$21.42.

UOB shares hit a record S$39.50 at the end of last week, though they retreated to close at S$38.72 on Wednesday.

The rally has been potent enough to prompt analysts at UOB Kay Hian (UOBKH) to raise their year-end STI forecast to 5,400 points – a revision made last week, just two weeks after they predicted the index would hit 5,000.

UOBKH analysts John Cheong, Heidi Mo and Tang Kai Jie attributed the market’s stamina to the inflow of Equity Market Development Programme funds. They argued that despite the record-breaking run, DBS shares are still “not expensive” due to rising yields.

However, not all observers are convinced by the valuation argument.

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The relative value play

Macquarie Equity Research analyst Jayden Vantarakis on Jan 21 reiterated an “underperform” rating on DBS, placing it at the bottom of his relative value “pecking order”.

While Vantarakis raised his target price to S$50, he flagged that DBS has the “least room” to surprise on the upside this earnings season, noting that consensus expectations, including a credit charge of just 10 basis points, are already at the optimistic end of the spectrum. DBS will release its full-year results on Feb 9.

Instead, Macquarie sees a “catch-up play” in UOB. Vantarakis upgraded the stock to “outperform” with a target price of S$41. He expects headwinds to abate and credit costs to normalise following the large one-off provisions the bank took in the third quarter.

He added that UOB has already topped up allowances and, like its peers, stands to benefit from a lower equity-risk premium as the Singapore sector enjoys “safe haven” status. UOB will report its results on Feb 24.

Holding a contrarian view, JPMorgan on Sunday downgraded the lender to “underweight” from “neutral”, though it maintained a target price of S$34.

Meanwhile, Vantarakis maintained an “outperform” call on OCBC, raising his target price to S$21.50. He is more optimistic than the street on the bank’s fee momentum and expects year-on-year growth in both pre-provision operating profit and net profit, despite typical fourth-quarter seasonal softness.

RHB on Wednesday also raised its target price for OCBC to S$21.30, forecasting single-digit earnings growth when the bank reports on Feb 25.

Broadly, Vantarakis noted that all three banks remain beneficiaries of wealth asset management inflows, aided by Singapore’s reputation for stability amid global geopolitical volatility.