DBS (Lim&Tan)

DBS / GREEK CRISIS S$14.52-DBSM.SI

- DBS’ greater price decline on Friday than its peers (almost 1% vs -0.6% for both OCBC and UOB) may be attributed to speculation (once again) of it being a likely buyer of Temasek’s 67.4% stake in Indonesia’s Bank Danamon. After all, a merger of say Malayan Bank and RHB Capital (CIMB has also been given the go-ahead by Bank Negara to commence talk) would create a bigger bank than DBS in market cap terms (assuming it is 1+1=2).

- Value of Temasek’s stake in the Indon bank is put at 34.3 trillion rupiahs / US$4 bln.

- Note however the Bank’s response (other than the usual “we don’t comment on market rumors): strengthening our existing operations and growing our business organically take IMMEDIATE precedence”.

- This should provide some “comfort / relief” to investors persistently worried about DBS making another “untimely’ and “overpriced” acquisition.

- Indeed we believe DBS’ focus on “organic growth” is the right strategy, except that time is needed for results from this “work in progress” to come through. Importantly, the 3.9% yield is sufficient enticement.

- On the other hand, weakness in Singapore banks stocks, like counterparts elsewhere, could also be affected by the current selling pressure felt by American and European banks.

- The former is being dragged down by a whole host of concerns shrouding the industry: regulatory, economic slowdown etc.

- And in Europe, banks are weak because of the uncertainties brought on by the crisis in Greece, as bankers, governments debate over the inevitability of rollover/reprofiling/restructuring of Greece’s debt.

- We expect strong “technical” support for DBS at the $14 level, where the yield is 4%, and 1.25x RNAV of $11.61.