Singapore Banks 4Q19 Round-up - UOB Kay Hian 2020-02-24: Hikes In Dividends Bring Yield To Above 5%

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

Singapore Banks 4Q19 Round-up - Hikes In Dividends Bring Yield To Above 5%

  • DBS and OCBC registered strong growth in fees of 16.7% and 17.3% y-o-y respectively, driven by growth in wealth management. Their NPL ratios also receded by a significant 13bp and 6bp q-o-q. OCBC surprised the market by hiking final dividend by 22% to 28 S cents.
  • We expect DBS and OCBC to raise 2020 DPS to S$1.32 and S$0.56 respectively, bringing dividend yield to 5.3% and 5.1%.
  • Maintain OVERWEIGHT. BUY DBS (Target: S$28.00) and OCBC (Target: S$12.68).



WHAT’S NEW


Moderation in loan growth.

  • DBS and OCBC registered moderation in loan growth to 3.7% and 2.7% y-o-y respectively in 4Q19. UOB saw contraction in loans of 2.3% q-o-q as the bank de-risked its balance sheet by trimming exposures to Singapore and North Asia. UOB’s US$-denominated loans and manufacturing loans contracted 11.6% and 15.8% q-o-q respectively.

NIM compression more significant for DBS.

  • OCBC and UOB registered smaller NIM compression of just 1bp q-o-q in 4Q19. OCBC benefited from NIM expansion of 8bp, 9bp and 29bp q-o-q respectively for Hong Kong, Malaysia and Indonesia. UOB’s shift in loan mix towards high-margin markets, such as Malaysia and Thailand, could have cushioned the fall in NIM.
  • DBS suffered steeper NIM compression of 4bp q-o-q due to its reliance on Singapore and Hong Kong, where interest rates have fallen more.

Wealth management grew from strength to strength.

  • DBS and OCBC registered strong growth in fees of 16.7% and 17.3% y-o-y respectively in 4Q19, driven by wealth management (DBS: +31% y-o-y, OCBC: +31% y-o-y, UOB: +42% y-o-y). UOB registered slower growth in fees of 1.9% y-o-y, held back by drop in loans-related fees by 25% y-o-y (disbursement slowed).
  • DBS, OCBC and UOB expanded AUM by 11%, 15% and 14% y-o-y respectively.

Strong treasury income.

  • OCBC and UOB recorded strong net trading income of S$316m (+3,411% y-o-y) and S$175m (+48% y-o-y) respectively in 4Q19. Besides benefitting from strong customer flows, OCBC’s net trading income was also boosted by gains from Great Eastern’s shareholders’ fund.

Asset quality improved at DBS and OCBC.

  • OCBC’s NPL ratio receded a significant 13bp q-o-q to 1.45% in 4Q19 due to upgrades/recoveries and write-offs for accounts in the oil & gas support vessels and services (OSV) sector.
  • DBS’s NPL ratio receded by 6bp q-o-q to 1.49% due to write-off of S$419m for legacy NPLs.

Resiliency from strong capital adequacy.

  • OCBC has the highest CET-1 CAR among local banks at 14.9%, boosted by retained earnings and its scrip dividend scheme. DBS and OCBC also have robust CET-1 CAR of 14.1% and 14.3% respectively.


ACTION


Maintain OVERWEIGHT.

  • Our positive view on Singapore banks rest on their attractive dividend yields of above 5%, which differentiate them from their regional peers. We see dividend paid out as sustainable due to Singapore banks’ robust CET-1 CAR.

BUY for sustainable yield.

  • Banks’ share prices are likely to suffer bouts of volatilities due to outbreak of COVID-19 during 1H20. We see S$24.00 and S$10.18 as attractive levels to accumulate DBS and OCBC for dividend yield of 5.5%.






Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2020-02-24
SGX Stock Analyst Report BUY MAINTAIN BUY 28.000 SAME 28.000
BUY MAINTAIN BUY 12.800 SAME 12.800
NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000



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