CIMB in a Sept 21 research report says: "We downgrade DBS to underperform after cutting our FY2011-2013 estimates by about 7%. This is mainly from non-interest income and credit costs. Our target price follows lowered ROEs down to $11.90 from $16.56, now based on 1.0x CY11 P/BV (GGM, ROE 10.3%, COE 10%, growth 4.3%).
"We are wary of the new credit cycle and DBS's exposure to China's export sector. We also reckon that DBS has the most room for topline slippages, as capital-market activities slow and interest rates stay low, providing de-rating catalysts.
"Lastly, while its 1.0x CY11 P/BV valuation is not lofty, experience with recessions in the last 15 years tells us that valuation multiples can over-shoot on the downside, when recession triggers set off. DOWNGRADE TO UNDERPERFORM."
"We are wary of the new credit cycle and DBS's exposure to China's export sector. We also reckon that DBS has the most room for topline slippages, as capital-market activities slow and interest rates stay low, providing de-rating catalysts.
"Lastly, while its 1.0x CY11 P/BV valuation is not lofty, experience with recessions in the last 15 years tells us that valuation multiples can over-shoot on the downside, when recession triggers set off. DOWNGRADE TO UNDERPERFORM."
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