OVERSEA-CHINESE BANKING CORP
O39.SI
UNITED OVERSEAS BANK LTD
U11.SI
DBS GROUP HOLDINGS LTD
D05.SI
Waiting for a catalyst
July loan growth was 2.2% y/y, a better-than-expected figure.
- Private home sales took a surprising jump as a single large, attractively-priced development went on the market. With Singapore’s economy at close to no growth, it’s hard to envision a catalyst to improve prospects for banks.
- Banks are not as vulnerable to their China exposure as the market seemed to think on 11 August, when shares fell 6% in a day. Our analysis shows that the impact of the 3% fall is probably less than 1% of profits.
Rising interest rates are a greater concern, but it cuts both ways.
- Net interest margins are positively impacted. However NPLs may rise as well – Q2 data suggests they’re already in an upward creep. There’s additionally a question of mark-to-market valuation with investments: DBS is most vulnerable in this regard.
Valuations are attractive.
- As seen in the chart below, price-to book multiples for OCBC and UOB are at their lowest levels since the global financial crisis. Dividend yields for the three banks are 3.4-4.4%, modest but not stingy.
- We offer the following recommendations for the banks, based on our earnings and balance sheet estimates and a return to normal valuations – thus assuming a time horizon of at least 12 months.
- Given current market bearishness, we would recommend slow accumulation of a position. Our top pick is OCBC given its superior fundamentals. OCBC is also makes an excellent proxy for the STI overall – 0.84 correlation, 0.92 beta. If you want to play Singapore you can do it with just this one stock.
Phillip Research Team | http://www.poems.com.sg/ Phillip Capital 2015-09-01
22.38
Same
22.38
14.87
Same
14.87
33.32
Same
33.32
