Singapore Banks 4Q19 Preview - CGS-CIMB Research 2020-01-17: A Dividend Play

DBS GROUP HOLDINGS LTD (SGX:D05) OVERSEA-CHINESE BANKING CORP (SGX:O39) UNITED OVERSEAS BANK LTD (SGX:U11)

Singapore Banks 4Q19 Preview - A Dividend Play

We see scope for higher dividends for OCBC (SGX:O39) (above S$0.25/share in 2H19) and UOB (SGX:U11) (S$0.75/share) but DBS (SGX:D05)’s earnings could be the best performer.
NIM in 4Q19F: -4bp q-o-q for DBS, -1bp q-o-q for OCBC and -1bp q-o-q for UOB.

4Q19F net profit:
- DBS, S$1.65bn (+1.4% q-o-q/+25% y-o-y);
- OCBC, S$1.13bn (-4% q-o-q/+22% y-o-y);
- UOB, S$1.09bn (-3% q-o-q/+19% y-o-y).
Credit cost pressures (particularly HK) should have largely played out over 2Q-3Q19. Expect weaker wealth and trading income from seasonal risk-off.

The heftier 12bp dip in average 3MSIBOR in 4Q19 (vs. 6bp in 3Q19) is likely to have compressed DBS’s NIMs by 4bp q-o-q, given the bank’s greater rate sensitivity. This resulted in a 4bp y-o-y rise in full-year FY19 NIMs to 1.89%.
We expect a 0.5% q-o-q growth from continued non-trade corporate loans (HK inclusive) and drawdowns from previous mortgage bookings. Housing loans should see a y-o-y contraction. We think wealth income should broadly sustain at the new normal (over S$300m/q), moderating other fee income weakness. Further provisions for the HK uncertainties are not expected.
See DBS Share Price; DBS Target Price; DBS Analyst Reports; DBS Dividend History; DBS Announcements; DBS Latest News.

NIM negativity (-1bp q-o-q) should persist as SGD rates trended downwards amid a moderate 0.5% q-o-q loan growth. OCBC’s potential NIM rise of +7bp y-o-y to 1.77% is the best-performing among peers.
We take the strength in FCY inflows as an indication of positive net new money in wealth management, although we note seasonal factors. The bulk of credit cost pressures should have been removed in 3Q19, further adjustment to ECL model is not expected. 4Q19F impairments should be lower at 16bp (3Q19: 27bp).
See OCBC Bank Share Price; OCBC Bank Target Price; OCBC Bank Analyst Reports; OCBC Bank Dividend History; OCBC Bank Announcements; OCBC Bank Latest News.

Loan growth could trend negative to -0.5% q-o-q as corporates pare down debt. The bank had also let some of its HK exposures roll off.
The large repayment volumes and ample liquidity could start to pressure NII (stable over previous quarters of NIM compression), though we estimate a smaller 1bp NIM compression in 4Q19F. The potential 4bp y-o-y NIM compression to 1.78% in FY19 is the weakest among peers. Better credit card fees should offset some of the risk-off wealth and loan-related fees but non-II is likely negative.
See UOB Share Price; UOB Target Price; UOB Analyst Reports; UOB Dividend History; UOB Announcements; UOB Latest News.

OCBC's share price could perform better than peers due to its strongest y-o-y NIM rise and intensifying pressures of higher dividends above our current S$0.50/share given the removal of an M&A overhang and stronger capital from Wing Hang’s eventual IRB adoption, although credit cost surprises underpin our HOLD call.
Higher dividends from DBS are less likely given the rise in its payout ratio to at least 50% since FY17, from just 36% in FY16.
Stable asset quality and a moderate growth outlook provides upside to UOB's dividend to S$0.75/share in 4Q19F (FY19: S$1.25/share), but share price could be anchored by its -4bp y-o-y NIM performance.
See DBS Target Price; OCBC Target Price; UOB Target Price.

Andrea CHOONG CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2020-01-17

SGX Stock Analyst Report ADD MAINTAIN ADD 28.290 SAME 28.290

HOLD MAINTAIN HOLD 11.940 SAME 11.940

ADD MAINTAIN ADD 29.100 SAME 29.100