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The Singapore team at RHB Group Research has maintained its “buy” call on DBS Group Holdings with an unchanged target price of $33 after the bank announced its intent to acquire a stake in Shenzhen Rural Commercial Bank on April 20.

This is DBS’s second acquisition in five months, after India’s central bank proposed that Lakshmi Vilas Bank (LVB) be amalgamated into DBS India on Nov 17 last year.

DBS said that it will subscribe to a 13% stake in the Shenzhen bank for a consideration of RMB5.29 billion ($1.08 billion).

In the near-term, RHB’s team says that impact on DBS’s earnings will be small but in the long-run, the acquisition will help accelerate the bank’s expansion into the Greater Bay Area (GBA).

“Overall, we are positive on DBS’s strategic acquisitions in India and China — both countries with strong prospects,” writes the team in a report dated April 21.

Privately owned Shenzhen Rural Commercial Bank has built a niche in serving local communities that have grown in wealth since the city’s rapid growth.

The bank has total assets of RMB519 billion, and operates one of the largest branch networks in Shen

Price target: RHB “buy” $33 zhen. The city itself has 210 of its 217 branches and over 2,100 self-service terminals. The bank has over five million active retail customers and over 170,000 active corporate clients.

“Shenzhen Rural Commercial Bank will allow DBS to increase its exposure to China — one of DBS’ six core markets. It will also accelerate DBS’ strategy to expand and grow in the GBA and it creates a mutually beneficial collaboration between Shenzhen Rural Commercial Bank and DBS’ Hong Kong and China franchises,” writes the team.

“Management believes there will be [the] opportunity to raise DBS’ stake given liberalisation of China’s financial services sector. GBA refers to the Chinese government’s scheme to link the cities of Hong Kong, Macau, Guangzhou, Shenzhen, Zhuhai, Foshan, Zhongshan, Dongguan, Huizhou, Jiangmen and Zhaoqing into an integrated economic and business hub”.

Shenzhen Rural Commercial Bank posted a net profit of RMB4.8 billion in the FY2020 ended December.

“A 13% share of Shenzhen Rural Commercial Bank’s FY2020 earnings would add 2.5% to DBS’ FY2020 net profit. In FY2020, Hong Kong and Greater China accounted for 24% of DBS’ earnings”, says the team.