Singapore Banking - UOB Kay Hian 2018-02-19: 4Q17 Round-up ~ Dividends Aplenty

Singapore Banking - UOB Kay Hian 2018-02-19: 4Q17 Round-up ~ Dividends Aplenty Singapore Banking Stocks Comparison DBS vs OCBC vs UOB UNITED OVERSEAS BANK LTD U11.SI DBS GROUP HOLDINGS LTD D05.SI OVERSEA-CHINESE BANKING CORP O39.SI

Singapore Banking - 4Q17 Round-up ~ Dividends Aplenty

  • Banks provided a generous serving of final and special dividends after Basel III reforms were finalised in Dec 17. Banks have guided for loan growth of high single-digits and we expect NIM expansion to continue into 2018. 
  • Maintain OVERWEIGHT.
  • OCBC is our preferred BUY (Target: S$14.90) due to IPO of Great Eastern (Malaysia) in 2H18. However, DBS could provide more short-term momentum in the run-up to the next FOMC meeting on 20-21 March (Target: S$30.40).



WHAT’S NEW

  • DBS’ and OCBC’s 4Q17 results beat expectations, while UOB’s results were in line with expectations.

Moderate pick-up in loan growth. 

  • DBS and OCBC achieved faster loan growth of 7.3% and 7.8% y-o-y respectively, compared with 4.7% y-o-y for UOB. 
  • DBS and OCBC benefitted from stronger growth in Singapore and Greater China. Conversely, UOB was held back when loans contracted by 0.6% q-o-q in 2Q17. 
  • We also noticed that DBS and OCBC grew deposits by a significant 3.2% and 5.7% q-o-q respectively in 4Q17.

NIMs on an upward trend. 

  • NIM expanded 7bp y-o-y for DBS and 4bp y-o-y for OCBC due to higher SIBOR and SOR. UOB registered NIM expansion of 12bp y-o-y, aided by higher yield from investment securities through extending durations.

Double-digit growth in fees. 

  • DBS, OCBC and UOB achieved double-digit growth in fees of 23.5%, 16.9% and 10.2% y-o-y respectively. Their wealth management fees also grew 44%, 38% and 29% y-o-y respectively, while assets under management (AUM) expanded 24%, 25% and 12% y-o-y. 
  • DBS’, OCBC’s and UOB’s credit cards fees grew 9%, 5% and 8% y-o-y respectively.

Looking at O&G sector from the rear view mirror. 

  • OCBC and UOB cleaned up their books by leveraging on the transition to FRS 109. They recognised new NPLs of S$1,355m and S$1,167m respectively in 4Q17, mainly for the oil & gas support services segment, and NPL ratio deteriorated by a similar 18bp to 1.44% and 1.78%. 
    1. For OCBC, new NPLs recognised were essentially loans that are not overdue, highlighting OCBC’s conservatism in recognising NPL. 
    2. For UOB, loans overdue by 90 to 180 days increased substantially by S$275m. 
  • DBS’ NPL ratio improved by 5bp q-o-q to 1.68% in 4Q17 after accelerated recognition of NPL in 3Q17.

Generous serving of final and special dividends. 

  • DBS, OCBC and UOB increased their final dividends by 100%, 5.6% and 28.6% y-o-y respectively to 60 S cents, 19 S cents and 45 S cents. DBS and UOB also declared special dividends of 50 S cents and 20 S cents respectively. 
  • Assuming DBS, OCBC and UOB pay dividends of 120 S cents (2 x 60 cents), 38 S cents (2 x 19 S cents) and 90 S cents (2 x 45 S cents) for 2018, their dividend yield would be 4.2%, 3.0% and 3.4% respectively.

Rock solid capital base. 

  • DBS and UOB are extremely well capitalised with CET-1 CAR at 13.9% and 14.7% respectively. 
  • OCBC’s CET-1 CAR is slightly lower at 13.1% but could be boosted if it divests 30% of Great Eastern (Malaysia) through an IPO or trade sale in 2H18 to comply with the limit on foreign ownership.


ACTION 

  • Maintain OVERWEIGHT. The down-sizing of central banks’ balance sheets coupled with resilient global growth could energise banks’ share prices and lift their valuations towards and above their mid-cycle valuations. 
  • Banks will also benefit from NIM expansion due to higher interest rates.


SECTOR CATALYSTS 

  • Rising interest rates and bond yields.
  • Easing of pressure on asset quality from the O&G sector, resulting in moderation of credit costs.


ASSUMPTION CHANGES 

  • We maintain our existing earnings forecast.


RISKS 

  • Rapid increase in the federal funds target rate (steep rate hikes) that may trigger capital outflows from countries in Southeast Asia.







Jonathan Koh CFA UOB Kay Hian | http://research.uobkayhian.com/ 2018-02-19
UOB Kay Hian SGX Stock Analyst Report NOT RATED Maintain NOT RATED 99998.000 Same 99998.000
BUY Maintain BUY 30.400 Same 30.400
BUY Maintain BUY 14.900 Same 14.900



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