DBS CEO Piyush Gupta sells S$3.4 million of shares. Should we be concerned?

What happened?

DBS Chief Executive Officer (CEO) Piyush Gupta has sold 100,000 of his shares in the company worth about S$3.4 million. 

According to filings with the Singapore Exchange, Piyush Gupta sold 8,100 shares at S$34.32 each and another 91,900 shares at S$34.2553 on Friday, 4^th August.

Following the share sale, he still owns about 2.19 million shares in DBS, representing about 0.085% of the total shares outstanding of the company. 

Should we be worried about Piyush Gupta’s latest share sale in DBS? Let us take a closer look at DBS’ recent results and understand if there are any worrying signs we should be concerned about. 

What we learnt from DBS’ latest results

DBS reported a record net profit of S$2.69 billion in the second quarter of 2023, a 48% increase compared to the previous year.

This was slightly above market expectations, as its net interest margin continued to rise and asset quality remains healthy.

#1 – Net Interest Margin rose in the second quarter 

DBS’ net interest margin rose to 2.16% in the second quarter of 2023 from 2.12% in the previous quarter, defying expectations that its margins have peaked in the near term. 

This exceeded the DBS Management's previous expectations, which noted at the first quarter results that net interest margin may have peaked, and there might be a decline in the second quarter.

Furthermore,  DBS Management now expect that there could be potential upside to net interest margins from current levels.

This is due to the recent hike in the benchmark rate by the US Federal Reserve, as well as higher Hong Kong Interbank Offered Rate (HIBOR). 

#2 – Asset quality remains healthy

Despite concerns about slowing economic growth leading to more bad debt, DBS’ asset quality remains healthy. 

Its non-performing loan ratio remained low at 1.1% in the second quarter of 2023, unchanged from the previous quarter. 

Management of DBS noted that it does not see any signs of stress in its portfolio. In fact, its watchlist of customers with loans at risk has improved. 

#3 – Dividend raised compared to previous year

With the stronger than expected results, DBS raised its dividend per share to S$0.48 in the second quarter. 

Together with the announced dividend per share of S$0.42 in the first quarter, the total dividend in the first half of 2023 would be S$0.90, representing a payout ratio of 45%.

More importantly, management of DBS estimates that it has excess capital of about S$3 billion that can be returned to shareholders in the coming years. 

This would represent a potential additional payout of S$1.20 per share as part of its capital management plans, compared to the total dividend per share of S$2.00 in 2022.

What would Beansprout do?

Following the stronger than expected second quarter results, DBS’ share price bounced to above S$34. This would represent a recovery of more than 10% from its low of S$30 in May this year. 

Should we then be concerned about Piyush Gupta’s share sale? What is worth noting is that this is not the first time Piyush Gupta has sold shares in DBS in recent years.

As recent as in November last year, he sold 300,000 shares in the range of about S$35 to S$35.50. In November 2021, he also sold 100,000 shares at S$32.50. 

In general, using buying and selling activity by company executives as a signal works better for buying than selling. Why? Because there can be many reasons not relating to company performance when it comes to management stock sale, such as to fund personal or family expenses. 

This is in contrast to management buying, which is typically just to make positive returns. 

However, there can be red flags if there are multiple selling by management, which could signal issues within the company.

What we are more wary about, is that the valuation of DBS is not cheap from a price-to-book perspective. 

DBS is currently trading at a price-to-book ratio of 1.5x, which is higher than its 5-year average of about 1.3x. 

This might be why analysts on average expect the potential upside for DBS to be fairly limited. According to SGX StockFacts, the consensus target price for DBS is S$37.487 as of 8 August 2023. This would be about 9% above its share price of S$34.30 as of 8 August 2023. 

Should DBS share price reach S$37.50, it would be trading at a price-to-book ratio of 1.6x, close to its peak valuation late last year. This could be supported by management’s aim to maintain a medium term return on equity on 15-17%.

According to consensus expectations, DBS is expected to offer a forward dividend yield of 5.6%. While this is lower than the forward dividend yield of UOB and OCBC, it remains above the dividend yield of the Straits Times Index (STI). 

What this means is that most analysts are not expecting significant share price upside for DBS from current levels as its valuation are already at fairly elevated levels. 

However, for investors who are looking at owning DBS for its dividend yield, the recent results continue to provide some reason to cheer. 

If you are looking at investing in Singapore REITs for the dividend yields, check out our Singapore REITs tool to compare and select the best REIT for your portfolio. 

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