Monday, April 13, 2009

Underperform for DBS - CIMB

CEO Richard Stanley has passed away. DBS’s CEO, Mr Richard Stanley, passed away on Saturday. In January, it was announced that Mr Stanley would be taking leave of absence for 3-6 months to fight cancer. Chairman Koh Boon Hwee took over his duties in the interim. After two rounds of chemotherapy, the cancer was in remission and Mr Stanley was diagnosed to be on track for a recovery. However, his condition took a turn for the worse and he passed away. We view this as regrettable news but do not believe there will be a direct impact on DBS’s share price.

Search for new CEO unlikely to take as long. After predecessor Mr Jackson Tai resigned in Oct 07, Mr Stanley was appointed only in Feb 08. He formally assumed duties in May 08. In the interim, various personalities were suggested by the media to be candidates. We believe that the search for a new CEO this time round will not take as long. With the previous search process merely more than a year ago and with Mr Stanley having been in the treatment ward for some time, DBS’s board is likely to: 1) have some idea of the preferred skill sets for the next successor; and 2) a good appreciation of the strengths of their internal candidates and likely external candidates. Also, back in 2007, the environment was less certain for the bank to decide on its
strategic path. We believe that the emphasis set on Consumer Banking and organic growth (by Richard Stanley) is clearly be the preferred path in the current environment and would be surprised if DBS did not pick someone to continue with this direction.

Maintain Underperform and S$8.82 target price for now. Our target price of S$8.82, based on 0.8x CY09 P/BV, remains unchanged. We note the renewed optimism on financial stocks recently. We are reviewing our recommendations for the banks and the FSSTI. Although we currently have a negative view on all the banks, DBS is our preferred exposure among the three Singapore bank
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