Singapore Banks - Maybank Kim Eng 2020-03-18: Value In The Time Of Corona


Singapore Banks - Value In The Time Of Corona

Despite deep cuts, SG banks offer value

  • Singapore banks have de-rated 26% YTD. In view of the escalating Covid-19 pandemic, we have lowered sector 2020-2022E PAT by 11-14%. See DBS Share Price, OCBC Share Price, UOB Share Price.
  • We expect a rapid rise in NPLs and credit charges may surpass levels seen during the 2017 O&M crisis. However, unlike past crises, these banks are starting with strong capital ratios, high provisioning levels and wider geographic diversity.
  • Unprecedented, coordinated fiscal and monetary stimulus efforts by governments focused on liquidity support should also provide downside support, in our view.
  • Importantly, the sector offers some of the highest and most visible dividend yields regionally. As a result, we believe Singapore banks currently offer substantial value.
  • Our order of preference is OCBC (upgraded to BUY), UOB and DBS.

We’ve applied an axe…

  • We expect 2020E sector PAT to fall 15% y-o-y – the largest decline since the GFC. NIMs are set to reduce 11bps y-o-y followed by 5bps in 2021E. We forecast a 1% y-o-y fall in domestic loan growth for the sector – the first since GFC. We expect NPLs to grow at its fastest pace since the GFC, and credit charges to surpass the 2017 O&M crisis.
  • Unlike this singular event where one-off kitchen sinking was possible, current physical limitations for businesses to transact (from social distancing etc.), should keep credit charges elevated for longer.
  • Our views are guided by the latest MKE economics forecasts plus a bearish overlay from a combination of SARS, GFC and the O&M crises. The success of global stimulus measures may provide potential upside surprise to these base case assumptions.

…yet balance sheet quality still comes forth

  • Current provision coverage is 10ppts higher vs. GFC, and 2020E CAR - despite earnings downgrades - should be 2.6ppts higher than GFC at 17.4%. 55% of loans are now booked outside Singapore, particularly from structurally higher growth markets in ASEAN and North Asia.
  • Singapore banks have the highest investment grade credit ratings in Asia ex. Japan. As a result, we believe the sector is far better prepared to face current volatility compared to earlier cycles.
  • See Fig14 in attached PDF report for summary on credit ratings of regional banks.

Offering substantial value

  • The sector is trading at 0.8x Fwd PB –2SD below mean. It offers a highly visible 2020E dividend yield of 6.4% - 136bps higher than ASEAN peers. Despite aggressive cuts to EPS and TPs, the banks offer significant value, in our view.
  • We have upgraded OCBC (SGX:O39) to BUY (from HOLD) on valuations and potential regional market share gains. Timing of market entry will depend very much on individual risk profiles given significant newsflow driven volatility. However, we note the banks have already completed 80% of their 2019 share buybacks volume in just the past 10-weeks. See SGX listed companies' Latest Share Buy Back Transactions.
  • See attached 26-page PDF report for complete analysis.


  • DBS’ exposure to large corporates and higher quality SMEs provide it with a strong positioning to mitigate current Covid-19 uncertainties. Its progressive dividend policy offers a visible and attractive yield compared to regional peers. Nevertheless, 62% of group loan exposure is in Singapore and Hong Kong where macro growth is set to remain structurally slower, vs. higher growth SE Asian markets.
  • Additionally, the group’s large, low cost CASA base (59% of deposits), whilst a boon during rising rates, may result in more NIM pressure compared to peers in a falling rate environment.
  • We have lowered 2020-2022E core-earnings by 12-15% and lowered our multi-stage DDM (COE 10.3%, 3% terminal) Target Price to SGD21.99 from SGD28.60.
  • Maintain BUY.
  • See DBS Share Price; DBS Target Price; DBS Analyst Reports; DBS Dividend History; DBS Announcements; DBS Latest News.


  • At 14.9% OCBC has the highest CET1 ratio amongst the domestic banks. Management’s shift towards progressive dividends and lowering M&A risks in 4Q19 provides stability and improved strategic visibility going forward. Separately, the Group has a USD loan-to-deposit ratio of 63%, which provides significant headroom to gain share of North Asian businesses relocating to ASEAN – where cross-border transactions are dominated by USD – as well as respond to any potential tightness of USD from Covid-19 uncertainty.
  • We have lowered 2020-2022E core-earnings by 4-20% and lowered our multi-stage DDM (COE 9.7%, 3% terminal) Target Price to SGD10.32 from SGD11.57.
  • Upgrade to BUY from HOLD.
  • See OCBC Share Price; OCBC Target Price; OCBC Analyst Reports; OCBC Dividend History; OCBC Announcements; OCBC Latest News.


  • Historically, UOB has historically displayed lower NPL growth volatility during banking down cycles including the GFC and the O&M crisis. The Group’s strong CET1 levels (14.3%) and high loan loss provision cover (91%) puts it in a solid position at the beginning of this crisis. The group’s regional integration efforts together with a low USD loan-to-deposit ratio (62%) should provide them an advantage in gaining market share from North-South supply chain moves.
  • Strong investments and successful deployment of their digital-only banking platforms in Thailand and Indonesia may provide new customer acquisition support, especially in a Covid-19 social distancing scenario where visits to physical branches and physical banking is limited.
  • We have lowered 2020-2022E core-earnings by 14-17% and lowered our multi-stage DDM (COE 9.7%, 3% terminal) Target Price to SGD22.55 from SGD29.17.
  • Maintain BUY.
  • See UOB Share Price; UOB Target Price; UOB Analyst Reports; UOB Dividend History; UOB Announcements; UOB Latest News.

See attached 26-page PDF report for complete analysis.

Thilan Wickramasinghe Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-03-18
SGX Stock Analyst Report BUY MAINTAIN BUY 21.99 DOWN 28.600