Singapore Banks - Maybank Kim Eng 2019-06-14: Self-Investing

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

Singapore Banks - Self-Investing


Banks responding to weakness with rising buybacks

  • Singapore banks have been de-rated 12% since their peak in April (see DBS share price, OCBC share price, UOB share price). Profit-taking, slowing economic growth in Singapore and escalating US-China trade tensions were culprits, in our view. During this time, share buybacks have picked up steam.
  • YTD, DBS (SGX:D05) and OCBC (SGX:O39) have bought back more shares and much earlier than last year. We believe this is an indicator of emerging value.
  • Our scenario analysis suggests that NPLs would need to rise 35-80% from current levels to bump credit charges up to levels seen during the O&M crisis and GFC. Against a backdrop where none of their operating markets appears heading for a recession, such a scenario is unlikely, in our view.
  • The sector is trading at a 17% FY19E P/E discount to ASEAN banks despite offering 149bp higher dividend yields. BUY UOB (SGX:U11) and DBS.



Buybacks back, alright!



Strong balance sheets even during deep distress

  • Based on our sensitivity analysis, we estimate that NPLs would need to rise 35-80% to reach the credit charges seen during the O&M crisis in 2017 and GFC in 2009. The resultant gross NPL ratios would be greater than the levels seen during those periods of deep distress. This is a scenario that is unlikely, in our view, as all their markets are forecast to have GDP growth in 2019-20E.
  • Moreover, even if they fully write down incremental NPLs, CET1 ratios should remain 380-470bps above regulatory minimums. This means that even if growth massively surprises on the downside, the sector has the balance-sheet strength to respond.


Value beyond volatility

  • Following its recent correction, the sector is trading at a 17% FY19E P/E discount to ASEAN peers. Yet, the banks are offering some of the highest dividend yields in the region. We believe the sector will benefit from a flight to quality and defensiveness as macro conditions remain volatile.
  • Our preferred picks are UOB (BUY, Target Price: SGD28.97) and DBS (BUY, Target Price: SGD29.46).





Thilan Wickramasinghe Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-06-14
SGX Stock Analyst Report BUY MAINTAIN BUY 29.460 SAME 29.460
HOLD MAINTAIN HOLD 11.070 SAME 11.070
BUY MAINTAIN BUY 28.970 SAME 28.970



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