[SINGAPORE] CGS International (CGSI) upgraded DBS shares to “add” from “hold”, raising its target price to S$79.50 from S$77.10, citing the bank’s “best-in-class” return on equity (ROE) of 20 per cent and an attractive projected dividend yield of 4.8 per cent for FY2027.
At DBS’s Monday closing price of S$73.36, the revised target price implies a potential upside of 8.4 per cent. The counter was up 1 per cent to S$74.65 as at 11.30 am on Tuesday (Oct 13).
In a research note on Monday, CGSI analysts Tay Wee Kuang and Tan Jie Hui said the upgrade and higher price target follow their pegging of the bank’s valuation to its FY2027 earnings forecasts.
The analysts added the DBS yield outpaces the Singapore banking sector’s average yield of 4.3 per cent.
For the upcoming third quarter ended September 2026, CGSI said it expects DBS to report a net profit of S$2.86 billion, down 3.2 per cent year on year and 7.1 per cent quarter on quarter. The brokerage attributed the contractions to high base effects following record earnings in Q3 FY2025 and Q2 FY2026.
Net interest income is unlikely to stage a turnaround in Q3, with CGSI estimating a 2.4 per cent year-on-year and 2.5 per cent quarter-on-quarter drop to S$3.49 billion. Net interest margin (NIM) is projected to narrow by 10 basis points (bps) year on year and 1 bps quarter on quarter to 1.86 per cent, as DBS continues to reprice fixed-rate assets, such as mortgages, at lower rates than those prevailing across 2024 and 2025.
The Business Times turns 50
Five decades of milestones and moments that shaped Singapore’s success story - told through our headlines.
Explore BT50
CGSI estimated DBS loans grew 1.5 per cent quarter on quarter in Q3, partially cushioning margin compression. However, this expansion trailed the broader banking system’s 3.2 per cent loan growth between June and August reported by the Monetary Authority of Singapore.
Wealth management
The analysts noted that the sector’s stronger consumer loans growth of 7.8 per cent was likely more transient than the 1.3 per cent growth in business loans over the same period.
Conversely, non-interest income is expected to remain resilient, rising 2.9 per cent year on year to S$2.42 billion. This was anchored by a 7.4 per cent increase in wealth management fees to S$855 million on sustained net new money inflows.
SEE ALSO
Even so, broader market activity softened after the US Federal Reserve raised interest rates in September 2026, dampening yields on DBS’s wealth assets under management. As a result, treasury customer sales and markets trading income are projected to slide 11.9 per cent and 14.7 per cent quarter on quarter, respectively, from record highs in Q2.
Total provisions are estimated at S$202 million, with credit costs normalising to 17 bps from 13 bps in the prior quarter. CGSI also noted a temporary hit to DBS’s Common Equity Tier-1 (CET-1) ratio from bond sell-off valuation losses, though this should be limited by the bank’s short portfolio duration.
Key re-rating catalysts include upbeat FY2027 guidance during the 3Q FY2026 results release and a rebound in the Singapore Overnight Rate Average (SORA) that could expand NIMs by late FY2026.
Downside risks
Downside risks include deteriorating macroeconomic conditions requiring higher credit provisions, weakened investor sentiment hitting fee generation, and persistent softness in SORA.
On the sustainability front, CGSI pointed out that DBS’s combined ESG score from LSEG slipped to C+ in 2025 from B in 2024, weighed down by a D+ grade in controversies.
This follows a lawsuit filed in September 2026 by court-appointed liquidators representing four 1MDB-linked companies claiming about S$1.3 billion, alongside longstanding environmental scrutiny around palm oil financing.
While these factors are not currently priced into valuations, prolonged misalignment with responsible financing could pose a longer-term overhang on the stock, said CGSI.