DBS Bank (SGX: D05), the safest bank in Asia, South East Asia's most profitable bank, has consistently demonstrated exceptional financial performance, navigating global uncertainties and economic challenges with aplomb, underpinned by a robust business model. Named as the world's best bank multiple times over the past decade, DBS achieved a record high quarterly profit of more than SGD 3 billion in Q3 2025, sending its share price rocketing by more than 8% to close at $42.40 this week.
After hitting all-time high, there is still an intriguing question: Currently, is DBS over, fairly or undervalued, presenting a compelling investment opportunity?
Strong Financial Foundation and Resilience
DBS Bank, a leading financial institution in Southeast Asia, boasts a strong financial foundation that underpins its resilience and growth. The bank maintains a robust capital adequacy ratio, well above regulatory requirements, ensuring its stability and ability to withstand potential shocks. Additionally, DBS has consistently demonstrated exceptional asset quality, with a low non-performing loan (NPL) ratio of 1%, reflecting prudent risk management practices and a high-quality loan portfolio.
The bank's diversified business model, spanning across multiple geographies and product lines, further enhances its resilience. DBS's presence in key Asian markets, including Singapore, Hong Kong, Taiwan, Indonesia, India and China, provides a balanced exposure to diverse economic cycles. This geographic diversification mitigates risks and supports sustainable growth.
Earnings Growth and a Dividend Powerhouse
DBS Bank has a proven track record of delivering consistent and steady earnings growth, driven by its strong market position, disciplined cost management, and strategic investments. The bank's ability to generate sustainable profits positions it favorably for future growth and shareholder returns.
In recent years, DBS has consistently reported strong financial results, driven by its core banking operations, wealth management, and investment banking segments. The bank's focus on digital transformation and regional expansion has further fueled its growth trajectory.
Moreover, DBS has a strong commitment to rewarding its shareholders through regular quarterly dividends. The bank's dividend payout ratio is typically prudent, ensuring a sustainable dividend policy while preserving capital for reinvestment and growth initiatives. This combination of earnings growth and dividend income makes DBS an attractive investment for both income-seeking and growth-oriented investors.
DBS has a history of increasing its dividend payouts over time, reflecting its strong financial performance and commitment to shareholder value. This makes it an attractive investment for those seeking a reliable and growing income stream.
DBS quarterly dividend was raised to 54 cents per share, up from 48 cents per share a year ago, reflecting the bank's commitment to returning value to shareholders while maintaining a healthy payout ratio of less than 55%. Assuming DBS can maintain its $2.16 annual dividends, its yield is easily slightly more than 5% at current price of $42.40, which is rather attractive as yields of lower risk financial instruments are expected to fall in the short-term.
Robust Capital Position
DBS Bank's robust capital position is a cornerstone of its financial strength, ensuring its resilience and ability to weather economic cycles. The bank maintains a strong Common Equity Tier 1 (CET1) ratio of 17.2%, well above regulatory requirements and comparable to global financial institutions. This strong capital base, coupled with a low non-performing loan (NPL) ratio of 1%, reflects effective risk management and sound asset quality.
DBS's proactive approach to capital management ensures that it is not merely hoarding capital but strategically deploying it to drive growth and enhance shareholder value. The bank has announced an SGD 3 billion share buyback programme in the next few years to buy back shares in the open market, cancel them, in a bid to lower their excess capital and increase earnings per share and return on equity, reducing their CET1 ratio by 0.8%.
There were recoveries from the oil and gas provisions that were made some years ago as well as in assets related to the money laundering case in Singapore. DBS also managed to monetise or refinance some Hong Kong and China property assets that were classified as NPL earlier in the year.
This combination of strong capital ratios, effective risk management, and a strategic approach to capital deployment reinforces investor confidence in DBS as a stable and income producing investment machine.
Potential Expansion
DBS is actively exploring strategic expansion opportunities in Malaysia according to numerous sources. DBS’ planned foray into Malaysia comes amid improving economic prospects for the South-east Asian nation, with new infrastructure projects and investments expected to result in a surge in credit growth. DBS is the only Singapore bank without a retail banking presence in Malaysia as counterparts OCBC Bank and UOB both have retail banking operations in Malaysia.
In addition to potential acquisitions of stakes in Malaysian banks, such as Alliance Bank Malaysia and Kuwait Finance House's Malaysian retail banking assets, rumors have emerged about DBS's interest in acquiring NTUC Income Insurance after the failed acquisition by Allianz. While these are merely speculations at this stage, such moves could significantly enhance DBS's presence in the retail banking of neighbouring country, insurance market and provide additional inorganic growth opportunities to strengthen its regional footprint and capitalize on the growing economic opportunities in Southeast Asia.
Fair valuation
As of Q3 2024, DBS's book value per share is reported at S$22.81. With the current share price of S$42.40, this results in a price-to-book (P/B) ratio of about 1.86. This indicates that DBS is trading at a premium to its book value, which is reflective of strong profitable bank's potential. JP Morgan's P/B ratio is 2.07, Bank of America's P/B ratio is 1.28 while Bank of China's P/B ratio is merely 0.39.
According to Gurufocus, DBS's intrinsic value projected based on future free cash flows is $65.99. According to value investing.io, the intrinsic value is lower at $56.52. By Alphaspread standards, the intrinsic value is slightly lower at $52.58. Simplywall.st generously valuates DBS's fair value at a whopping $80.64!
In terms of target prices, the analysts from brokerages have expressed positive views on DBS's prospects, citing its strong fundamentals, attractive valuation, growth potential and projected a range from $37.30 by CGSI Research, $ 38.50 by Phillips Securities, $43.60 by OCBC Investment, $44,70 by RHB Invest, $46.91 by Maybank Research, to $46.95 by UOB Kay Hian in the next 12 months.
Logically if the dividend yield of DBS is compressed to 4% as more investors shift their cash from declining yields of Fixed Deposit, T-Bill and money market funds into bank equities, the share price of DBS is $54! Personally, I believe there is still headroom for DBS share price to soar higher.
Will I buy more DBS shares at $42.40?
As DBS's growth strategy is predicated on Asia's megatrends, including the rising middle class, growing intra-regional trade, urbanisation, and the rapid adoption of technology that is fuelling new innovations. the bank seeks intermediate trade and capital flows as well as support wealth creation in Asia. The bank is strategically and well positioned for future opportunities in a rapidly evolving financial landscape. Their commitment to enhance shareholder value through share buyback, increasing dividends and potential acquisition of Malaysian banks reflects a pragmatic approach that could yield significant returns in the long run.
Buying DBS shares at $42.40 offers exposure to a well-capitalized bank with strong earnings potential but also aligns with a strategic vision that prioritizes long-term growth and stability in an increasingly competitive market. If I had spare war chest or extra funds lying idle, I would invest half of it to reap the 5% yield while dollar-cost average into DBS over the next few years.
Additionally, several potential catalysts could further drive DBS's stock price in the coming months and years. These catalysts include Donald Trump's looser capital and inflationary policies, continued economic recovery in Asia, favorable regulatory developments, and successful execution of the bank's expansion push.
While no investment is without risk. DBS's strong fundamentals, attractive valuation, and growth prospects make it a compelling investment opportunity. The bank's resilience, diversified business model, and track record of delivering shareholder value position it favorably for long-term success.
I currently own 1,300 shares of DBS in my SGX and SRS account and is keen to increase my investment in DBS. However, my frugal instincts and technical analysis will influence me to be patient, hold out for a healthy retracement and place an order slightly near the 100 days MA support at $37.30 or 200 days MA at $35 instead.
Investors seeking strong income stocks with strong visibility in earnings potential and a history of rewarding shareholders could consider DBS as a potential addition to their portfolios. However, it is essential to conduct thorough due diligence and consider individual risk tolerance before making any investment decisions.
On the back of macroeconomic factors such as economic recession fears, global political landscape uncertainties and interest rate noises, as DBS stock price is the top constituent of Singapore's Straits Times Index, it may be very volatile. At above $42, the margin of safety is much lower compared to if we were to invest in DBS earlier in the past few months to past years when its stock prices hover between $20 to $30. As we have witnessed several times in the past, DBS share price could plunge or tank heavily by more than $2 or 5% a day whenever noise or bad news hit due to macroeconomic factors or global uncertainties, incurring huge losses or even margin calls if our purchases are on margin or borrowed funds.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Investors should conduct their own research and consult with a financial advisor before making any investment decisions.
Thank you for reading.
With love & peace,
Qiongster
