Singapore Banks - Maybank Kim Eng 2020-01-24: The Great ASEAN Migration

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 - The Great ASEAN Migration


SG banks may win from ASEAN supply chain shifts

  • Our research suggests that Chinese supply chains relocating to ASEAN is intensifying, catalysed by trade war uncertainties and woes in HK. This is driven by MNCs and large/mid Chinese corporates as they look to hedge supply risks and overcome tariffs. We think they will look for regional banking counterparties with strong balance sheets and access to USD funding. The SG banks offer this. Their better regional integration and wide suite of tech-enabled services should also put them ahead of domestic ASEAN banks.
  • UOB (SGX:U11) will benefit the most, followed by OCBC (SGX:O39) given their larger ASEAN footprint and operational integration.



Supply chain relocations to ASEAN picking up pace

  • Rising labour costs in China and generous investment incentives in SE Asia have been shifting supply chains from the Mainland to ASEAN for a while. This pace is now accelerating. Key beneficiaries are Vietnam, Thailand, Malaysia & Indonesia where on average manufacturing labour costs are 32% lower than China, while infrastructure is improving.
  • For e.g. Vietnam’s global logistics performance ranking has increased to 39th in 2018 vs. 64 just 2 years ago. In 2019, 13% of American businesses in China looked to ASEAN to redirect investment, a proportion that was only 9% a year before. These shifts are already starting to have an effect: in Jan-Oct 2019, US imports from ASEAN rose 11% y-o-y, while it fell 15% from China.


Singapore banks have a strategic advantage

  • The shifting MNCs & large/mid Chinese corporates will be looking for banking counterparties that have low balance sheet risk. They would also desire USD funding given its predominant use in cross-border transactions in SE Asia.
  • The Singapore banks have the highest credit ratings in ASEAN, whilst their USD funding mix has increased from 14% of deposits in 2013 to 30% in 2019E – 22ppts higher, on average, than other large regional banks. High levels of integration over common technology platforms and wide product suites in trade financing, cross border transactions etc. also gives an edge.


UOB most geared to ASEAN

  • These structural shifts will happen over a long, multi-year cycle. The Singapore banks’ positioning early in the cycle should provide a competitive advantage and supplement slower growth at home. This will further improve dividend visibility.
  • We believe UOB (SGX:U11) will benefit the most given high levels of regional integration and a proven cross-border execution track record.
  • OCBC (SGX:O39) will also benefit, but longer term sustainability will depend on successful execution of their Greater Bay strategy connecting North Asia and SE Asia trade flows.

See attached 25-page PDF report for complete analysis.






Thilan Wickramasinghe Maybank Kim Eng Research | Lee Ju Ye Maybank Kim Eng | Linda Liu Maybank Kim Eng | https://www.maybank-ke.com.sg/ 2020-01-24
SGX Stock Analyst Report BUY MAINTAIN BUY 29.920 SAME 29.920
HOLD MAINTAIN HOLD 11.260 SAME 11.260
BUY MAINTAIN BUY 30.500 SAME 30.500



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