CGS International upgrades DBS shares, sets S$79.50 target

CGS International upgrades DBS shares to 'add'

CGS International (CGSI) upgraded its rating on DBS shares to 'add' from 'hold' in a research note published on Monday, 12 October 2026. The brokerage simultaneously increased its target price for the Singaporean bank to S$79.50, up from the previous S$77.10.

Based on DBS's closing price of S$73.36 on Friday, 9 October 2026, the updated target price suggests a potential upside of 8.4 per cent for the stock.

CGSI analysts Tay Wee Kuang and Tan Jie Hui attributed the upgrade and higher price target to DBS's projected return on equity of 20 per cent, which they described as 'best-in-class', and an attractive forecasted dividend yield of 4.8 per cent for the financial year 2027.

This projected yield surpasses the Singapore banking sector's average yield of 4.3 per cent, according to CGSI's analysis.

Q3 2026 net profit expected to decline

Despite the positive outlook on valuation, CGSI anticipates a decrease in DBS's net profit for the third quarter ending September 2026. The brokerage forecasts net profit to reach S$2.86 billion, representing a 3.2 per cent year-on-year reduction and a 7.1 per cent quarter-on-quarter contraction.

CGSI attributed these declines to high base effects, following record earnings reported in Q3 FY2025 and Q2 FY2026. Net interest income is also expected to show a downturn in Q3 2026, with CGSI estimating a 2.4 per cent year-on-year and 2.5 per cent quarter-on-quarter drop, bringing the total to S$3.49 billion.

This is primarily due to a projected narrowing of the net interest margin (NIM) by 10 basis points year-on-year and 1 basis point quarter-on-quarter, to 1.86 per cent, as DBS reprices fixed-rate assets at lower rates compared to 2024 and 2025 levels.

Loan growth and non-interest income performance

DBS's loan portfolio expanded by 1.5 per cent quarter-on-quarter in Q3 2026, which partially mitigated the margin compression. However, this growth lagged the broader Singapore banking system's loan expansion of 3.2 per cent between June and August 2026, as reported by the Monetary Authority of Singapore.

CGSI analysts noted that the banking sector's stronger consumer loan growth of 7.8 per cent over this period was likely more temporary than the 1.3 per cent growth observed in business loans. Conversely, non-interest income is expected to demonstrate resilience, with a projected 2.9 per cent year-on-year increase to S$2.42 billion.

This growth is primarily supported by a 7.4 per cent rise in wealth management fees, reaching S$855 million, driven by sustained net new money inflows. Nevertheless, broader market activity softened after the US Federal Reserve's interest rate hike in September 2026, which dampened yields on DBS’s wealth assets under management.

Consequently, treasury customer sales and markets trading income are projected to decline by 11.9 per cent and 14.7 per cent quarter-on-quarter, respectively, from their record highs in Q2 2026.

Provisions, capital, and ESG factors

CGSI estimates total provisions for DBS at S$202 million for Q3 2026, with credit costs normalising to 17 basis points from 13 basis points in the preceding quarter.

The brokerage also identified a temporary impact on DBS’s Common Equity Tier-1 (CET1) ratio due to valuation losses from bond sell-offs, though this effect is expected to be limited given the bank's short portfolio duration. On the sustainability front, CGSI observed that DBS’s combined ESG score from LSEG declined to 'C+' in 2025 from 'B' in 2024.

This was primarily weighed down by a 'D+' grade in controversies, following a lawsuit filed in September 2026 by liquidators representing four 1MDB-linked companies, claiming approximately S$1.3 billion. Longstanding environmental scrutiny related to palm-oil financing also contributed to this assessment.

While these ESG factors are not currently reflected in valuations, CGSI suggests that a sustained divergence from responsible financing practices could present a longer-term overhang on the stock.

Implications for investors

For investors considering DBS shares, CGSI identifies several potential rerating catalysts. These include upbeat guidance for FY2027, which is expected during the upcoming Q3 FY2026 results release, and a potential rebound in the Singapore Overnight Rate Average (Sora) that could expand net interest margins by late FY2026.

Conversely, downside risks include a deterioration in macroeconomic conditions, which could necessitate higher credit provisions, a weakening of investor sentiment that might affect fee generation, and persistent softness in Sora.

The Q3 FY2026 results release will be a key event for market participants, providing further clarity on the bank's operational performance and management's outlook for the next financial year. Investors will be closely monitoring these factors for their impact on DBS's future earnings and valuation.