DBS' contributions from Southeast Asia to expand from 7% of revenue to 27%

Guess which country will be DBS' top 3 contributor?

According to UOB Kayhian, consistency in financial performance has  improved as DBS focuses on executing its nine strategic priorities. DBS will generate organic growth from the Global Transaction Service, Wealth Management and SME businesses, which are the regional businesses earmarked in its nine strategic priorities.

Here's more from UOB:

Geographical diversification through Bank Danamon. DBS has proposed to acquire a 67.4% stake in Bank Danamon from Fullerton Financial Holdings through a swap of 439m new DBS shares at an issue price of S$14.07.

The implied consideration is Rp7,000/share, or S$6.2b, representing 2011 P/B of 2.6x. DBS intends to merge Bank Danamon with PT Bank DBS Indonesia to create the fifth-largest bank in Indonesia.

Contribution from South and Southeast Asia (mainly Indonesia and India) is expected to expand from 7% of revenue to 27% based on the financial performance in 2011. Indonesia will become a top-three contributor after Singapore and Hong Kong.

Maintain BUY. Valuation is overly depressed with 2013 P/B at 1.1x, the lowest among large commercial banks within ASEAN. Our target price for DBS is S$19.38. It is based on 2013 P/B of 1.44x derived from Gordon Growth Model (ROE: 11%, required return: 8.0% and constant growth: 1.2%).