OCBC
OVERSEA-CHINESE BANKING CORP
O39.SI
DBS GROUP HOLDINGS LTD
D05.SI
Banking – Singapore 4Q15 Round-up: Mean Reversion With OCBC Outperforming
- NIM expanded by 2-8bp qoq while asset quality remained resilient.
- Further disclosure on exposure to the O&G sector indicates that loans extended to the riskier offshore support services are well collaterised.
- OCBC has been the most proactive in rescheduling loans to the O&G sector since 3Q15 and was realistic in recognising them as NPLs.
- Top pick is OCBC, followed by DBS. Maintain OVERWEIGHT.
WHAT’S NEW
- OCBC’s 4Q15 results were above expectations. DBS’ results were slightly above but UOB’s results were in line.
NIM expanded for all three banks.
- Loan growth was anaemic at 2.8% yoy for DBS, 0.4% yoy for OCBC and 4% yoy for UOB.
- Net interest margin (NIM) expanded by 6bp, 8bp and 2bp qoq for DBS, OCBC and UOB to 1.84%, 1.74% and 1.79% respectively.
Healthy growth in fees.
- Fee income was affected by weaker contribution from market sensitive sources. Nevertheless, DBS, OCBC and UOB managed to achieve single-digit increases of 5.7% yoy, 5% yoy and 6.7% yoy respectively.
- Net trading income was resilient at S$289m for DBS, S$163m for OCBC and S$211m for UOB due to higher treasury customer flows.
Asset quality remained resilient.
- NPL ratios for both DBS and OCBC were unchanged at 0.9%. UOB’s NPL ratio deteriorated by 0.1ppt to 1.4%.
- OCBC was more conservative to recognise NPLs from the Oil & Gas sector since 3Q15.
New order in capital adequacy.
- The revised MAS Notice 637 Risk-Based Capital Adequacy Requirements took effect from 1 Jan 15.
- DBS has the highest fully loaded CET-1 CAR of 12.4%, followed by OCBC’s at 11.8%. MAS has clarified the treatment of undrawn commitments.
- Following the clarification, UOB’s fully loaded CET-1 CAR had deteriorated by 0.5ppt qoq to 11.7%.
ACTION
Maintain OVERWEIGHT.
- Investors are currently overly pessimistic. We believe current share prices for banks have already imputed a crisis of severity similar to the Global Financial Crisis.
- We maintain our BUY calls as downside could be limited.
SECTOR CATALYSTS
Growth in Asia.
- Banks’ corporate banking business will benefit from growth in intraregional trade and investments. The consumer banking business will benefit from rising affluence in Asia.
Attractive valuation.
- Valuations for banks are undemanding with DBS trading at 2015F P/B of 0.83x and OCBC at 0.95x.
ASSUMPTION CHANGES
- As per results notes for DBS and OCBC.
RISKS
- Further economic slowdown and political risks in regional countries.
Jonathan Koh CFA
UOB Kay Hian
|
http://research.uobkayhian.com/
2016-02-23
UOB Kay Hian
SGX Stock
Analyst Report
9.98
Same
9.98
17.48
Same
17.48
