Banks - CGS-CIMB Research 2019-06-03: Regional Growth As A Pillar Of Strength

Singapore Banks - CGS-CIMB Research | SGinvestors.io DBS GROUP HOLDINGS LTD (SGX:D05) OVERSEA-CHINESE BANKING CORP (SGX:O39) UNITED OVERSEAS BANK LTD (SGX:U11)

Banks - Regional Growth As A Pillar Of Strength

  • System loan growth edged up to +4% y-o-y in Apr 2019, mainly driven by regional biz loans. Flat domestic growth as mortgages contracted 0.3% m-o-m.
  • FD growth was unwaveringly strong at +21.6% y-o-y, pushing total deposit growth to +7.1% y-o-y – the highest since Jan 2017. CASA contracted further.
  • Maintain NEUTRAL. UOB (SGX:U11) remains our top pick - valuations are inexpensive at 1.0x FY19F P/BV (c.1 s.d. below long-term mean) with 5.1% dividend yield.



FY19F system loan growth likely to moderate to c.4-5%

  • Banking system (DBU + ACU) loan growth was broadly stable at +4.0% y-o-y in Apr 2019. Almost all of the growth was contributed by regional business loans. Domestic loan balance was flat m-o-m as growth in loans to the building and construction industry offset most of the contraction in all other business segments while mortgages continued to weigh down consumer credit growth.
  • We think that system loans are likely to expand by a more moderate c.4-5% (FY18: +5.3%) in tandem with our lower GDP growth expectations of +2.3% in FY19.


We think mortgage growth could be supported by HDB upgraders

  • Domestic mortgages contracted for the third consecutive month in Apr 2019 (-0.3% m-o-m) as tailwind effects from the banks’ board rate repricing exercises come through. That said, we think that the declining trend could reverse in coming months from a leap in the number of public housing units (HDBs) with 5-year minimum occupancy periods ending in FY19 (c.30k units vs. average of 7k units in FY15-18).
  • We expect this to provide an enlarged pipeline of potential HDB upgraders looking to secure private housing, whether in the primary or secondary market, thus supporting domestic mortgage growth in 2H19.
  • Primary home sale figures in 1Q19 were also encouraging, having risen 19.5% y-o-y to 1,945 units. We view the 735 units sold in Apr 2019, albeit flattish y-o-y, positively given the property cooling measures imposed in Jul 2018.


Funding cost pressure and hence, FD growth, should ease in 2H19

  • Domestic deposits rose 7.1% y-o-y in Apr 2019 on the back of unwaveringly strong fixed deposit growth of +21.6% y-o-y. Accordingly, CASA deposits shrank further by 1.1% y-o-y. We believe that the incessant rise in fixed deposits since 2H18 may moderate over the coming months as funding pressures ease with the pause in Fed rate hikes.
  • With the downtrend in USD rates, the pace of increase of average 3MSIBOR has also slowed in FY19, rising just 4bp to 1.96% in 2Q19 (from 1.92% in 1Q19).
  • Nevertheless, we are hopeful that this may sustain NIMs in 2H19 as mortgage repricing effects run off. We expect NIMs across Singapore banks to expand by up to 5bp in FY19.


Valuations inexpensive but upside could be capped by trade noise

  • We maintain our Neutral stance on the sector given the more moderate loan growth prospects and NIM expansion in FY19. Sector valuations continue to trend below the 15- year mean of 1.3x CY19F P/BV but upside could be capped by trade war volatilities.
  • Preference for the sector is UOB (SGX:U11), OCBC (SGX:O39) then DBS (SGX:D05).
  • Downside risk is a Fed rate cut.


Highlighted Companies


DBS Group


OCBC


United Overseas Bank






Andrea CHOONG CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://research.itradecimb.com/ 2019-06-03
SGX Stock Analyst Report HOLD MAINTAIN HOLD 27.640 SAME 27.640
HOLD MAINTAIN HOLD 12.590 SAME 12.590
ADD MAINTAIN ADD 29.580 SAME 29.580



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