Singapore Banks - CGS-CIMB Research 2020-02-21: DPS raised for OCBC and UOB

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

Singapore Banks - DPS raised for OCBC and UOB

  • OCBC Bank (SGX:O39)’s 4Q19 NP of S$1.24bn (+6% q-o-q, +34% y-o-y) was 9%/10% above our/consensus forecasts. Strong insurance and trading income, mainly Great Eastern.
  • UOB (SGX:U11)’s 4Q19 net profit of S$1.01bn (-10% q-o-q, +11% y-o-y) was broadly in line with our/consensus estimates. FY19 NIM -4bp, weakest among peers.
  • All Singapore banks lifted DPS. UOB’s was raised to S$0.75/share (FY19 payout 50%) and OCBC’s was hiked to S$0.28/share (FY19 payout: 47%).



OCBC: very strong MTM from Great Eastern, SP trends high at 41bp

  • OCBC Bank (SGX:O39)’s 4Q19 net profit beat expectations, mainly due to strong insurance income (+9% q-o-q, -9% y-o-y) and very strong trading gains (+74% q-o-q) coming from an increase in customer flow income and MTM gains from Great Eastern (SGX:G07). However, credit cost of 31bp was close to double of the 16bp we expected.
  • 2020 guidance: low loan growth expected, FY20 NIM below 2019’s (1.77%) but above 2018’s (1.7%).
  • 2019 NIM was flattish at 1.77% as the funding cost savings (-15bp) kept up with loan yield contraction (-15bp). FY19 NIM was up 7bp y-o-y, the strongest increase amongst peers.
  • Regionally, OCBC Wing Hang’s NIM rose 8bp to 1.84%, OCBC Malaysia’s climbed 9bp to 2.08% and OCBC NISP’s gained 29bp to 4.06%.
  • Impairment provisions of S$207m translated into credit costs of 31bp in 4Q19 (3Q19: 27bp). SPs were high at 41bp (3Q19: 40bp). We estimate that about a third of this was a migration from GP.
  • Insurance income was 9% stronger q-o-q at S$204m (-9% y-o-y) on the back of higher q-o-q contributions from GEH of S$237m. Great Eastern recorded stronger total weighted new sales (TWNS) of S$395m (+24% q-o-q) and better new business embedded value (NBEV) of S$200m (+22% q-o-q).
  • See OCBC Bank Share Price; OCBC Bank Target Price; OCBC Bank Analyst Reports; OCBC Bank Dividend History; OCBC Bank Announcements; OCBC Bank Latest News.


UOB: -1bp NIM q-o-q, 2% q-o-q loan contraction, SPs were higher

  • UOB (SGX:U11)'s NII dipped 3% q-o-q although NIM compressed by just 1bp q-o-q to 1.76%. Note that except for a 1% reduction in 1Q19, UOB’s NII has so far remained resilient through quarters of margin compression since 1Q18. The dip came as UOB’s loan base contracted 2.4% q-o-q, bringing FY19 y-o-y loan growth to 2.7%.
  • Trading income of S$175m (+18% q-o-q, +48% y-o-y) was slightly below our estimated S$205m. Credit cost was stable at 21bp in 4Q19; we had expected 16bp.
  • 2020 guidance: downward margin pressure, slight uptick in credit costs, wealth income momentum to continue, cost-to-income stable.
  • LDR improved to 85.4% (3Q19: 89.3%) on the back of ample liquidity (2% deposit growth) amid the 2% loan base contraction.
  • Impairment provisions of S$146m translated into 21bp of credit costs (3Q19: 21bp).
  • Regionally, Singapore NIM dipped 6bp to 1.43% with -2% loan growth, Malaysia NIM was up 7bp to 2% with -1% loan growth, Thailand NIM was flattish at 3.11% with +2% loan growth, Indonesia NIM rose 28bp to 3.86% with -1% loan growth and Greater China NIM increased 14bp to 1.02% with -8% loan growth.
  • See UOB Share Price; UOB Target Price; UOB Analyst Reports; UOB Dividend History; UOB Announcements; UOB Latest News.





Andrea CHOONG CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2020-02-21
SGX Stock Analyst Report HOLD MAINTAIN HOLD 11.940 SAME 11.940
ADD MAINTAIN ADD 29.100 SAME 29.100



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