DBS GROUP HOLDINGS LTD (SGX:D05)
OVERSEA-CHINESE BANKING CORP (SGX:O39)
UNITED OVERSEAS BANK LTD (SGX:U11)
Singapore Banks 2Q21 Preview - Normalising Trends
- Key 2Q trends to expect for Singapore banks: slower loan growth, normalising wealth income from record highs, and weaker treasury income as financial markets stabilise.
- Credit cost trends set to be mixed: higher impairments at DBS (SGX:D05) as model-led write-backs ease and a reduction for UOB (SGX:U11) from stable portfolio performance.
- Reiterate Overweight. We factored in banks’ dividend cap to be removed for FY21F. MAS announcement by end-Jul could be a catalyst for the sector.
Banks’ asset quality guidance key to achievability of 10-12% ROEs
- We expect q-o-q revenue normalisation across the sector, as exceptional wealth and treasury income levels in 1Q21 ease.
- For 2Q21F, we think more stable financial markets and corresponding risk-off sentiment could dampen customer flows. While NIMs should be flattish (with slight downward bias) as loan repricing eases, we still expect progressive NII growth from loan drawdown momentum.
- At this stage, the banks are on track to meet our FY21F ROE forecasts of ~10-12%. With the next US Fed rate hike not likely until 2022F, we think banks’ management guidance on asset quality in ASEAN (given extended lockdowns and moratoriums) will be key to any possibility of an earnings surprise in 2H21F.
DBS’s 2Q21F net profit likely moderated from an exceptional 1Q21
- DBS's 2Q21 earnings announcement due on 5 Aug 2021.
- We expect DBS to record a net profit of S$1.63bn in 2Q21F (-19% q-o-q, +31% y-o-y).
- Loan growth is tracking comfortably to mid-to-high single digits so far in FY21F but we expect this to slow down in 2H21F as the effects of regional lockdowns filter through. As growth momentum slows (2Q21F: +2%), we think NIMs could also drift lower to 1.47% (1Q21: 1.49%).
- Fees should largely hold up, but wealth management income may normalise amid the risk-off sentiment. Sustained customer flows likely held trading income steady, but the absence of investment gains could result in lower profits.
- As the expected credit loss (ECL) model incorporates longer time horizons, the recent movement restriction order in SG is unlikely to spike credit costs; we expect ~18bp in 2Q21F (1Q21: 1bp) as write-backs ease.
- See DBS's Share Price, DBS's Target Price.
We project flattish 2Q21F net profit for UOB
- UOB's 2Q21 earnings announcement due on 4 Aug 2021.
- We forecast UOB posting a net profit of S$993m (-1% q-o-q, +41% y-o-y) in 2Q21F.
- Loan growth likely eased slightly (expect +3% q-o-q in 2Q21F) on less opportunistic openings and pent-up demand. Nonetheless, we expect NIMs to have stayed flattish at 1.57% in 2Q21F as deposits were deployed. We expect normalisation across almost non-II lines, including wealth management.
- On the bright side, the dip in total income (~5% q-o-q) should be offset by more benign credit costs (2Q21F: ~18bp, 1Q21: 29bp) as portfolio performance held steady.
- UOB has warned of some uptick in moratorium applications (e.g. Malaysia), but it has not detected material asset quality deterioration.
- See UOB's Share Price, UOB's Target Price.
OCBC's wealth and trading income expect to normalise
- OCBC's 2Q21 earnings announcement due on 4 Aug 2021.
- We forecast OCBC posting a net profit of S$1.15bn (-23% q-o-q, +46% y-o-y) in 2Q21F.
- Corporate loan growth momentum is still present, but we expect the bulk of loan growth to come in 2H21F when excess liquidity can be deployed. We pen in loan growth of 1.1% q-o-q for 2Q21F to account for some lockdown-induced slowdown (1Q21: +1.4% q-o-q)
- NIMs should stay steady (we expect 1.56%, flattish q-o-q), fuelled more by deposit optimisation than credit growth.
- We think that the earnings gap (vs. 1Q21) will come from weaker non-II (-18% q-o-q, +6% y-o-y) – lower broad-based fee income, and weaker wealth, treasury and insurance incomes from the risk-off sentiment, reduced face-to-face sales opportunities, and absence of yield movements.
- See OCBC's Share Price, OCBC's Target Price.
UOB is our preferred bank, followed by DBS and OCBC
- Broadly, UOB’s 2Q21F net profit (flattish q-o-q) will likely benefit from its traditionally more stable earnings performance compared with DBS and OCBC (dip of ~19-23% q-o-q) due to the latter two banks’ larger and more volatile wealth (MTM gains/losses) and treasury books.
- Trading at 1x FY21F P/BV, UOB remains our top sector pick as a laggard and economic re-opening play. We think market concerns over UOB’s ASEAN exposure are overblown and expect its valuation gap (with peers) to close in the near term.
- See the 12-page PDF report attached below for complete analysis on Singapore Banks' 2Q21 earnings preview.
Andrea CHOONG
CGS-CIMB Research
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LIM Siew Khee
CGS-CIMB Research
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https://www.cgs-cimb.com
2021-07-16
SGX Stock
Analyst Report
32.640
SAME
32.640
13.750
SAME
13.750
28.840
SAME
28.840
