Singapore Banks 2Q21 Round-up - UOB Kay Hian 2021-08-06: Dividend Yields Normalise Back To Pre-COVID-19 Levels

Singapore Banks 2Q21 Round-up - UOB Kay Hian | SGinvestors.io DBS GROUP HOLDINGS LTD (SGX:D05) OVERSEA-CHINESE BANKING CORP (SGX:O39) UNITED OVERSEAS BANK LTD (SGX:U11)

Singapore Banks 2Q21 Round-up - Dividend Yields Normalise Back To Pre-COVID-19 Levels

  • Banks’ 2Q21 results demonstrated stabilisation in asset quality and continued moderation in credit costs. DBS's, OCBC’s and UOB’s CET-1 CAR of 14.5%, 16.1% and 14.2% respectively are much higher than operating range of 12.5-13.5%. The cap on dividends has been lifted and dividend yields have normalised back to pre-COVID-19 levels. DBS and OCBC provide 2022F dividend yield of 4.5%.
  • Maintain OVERWEIGHT. BUY DBS (Target Price: S$35.80) and OCBC (Target Price: S$15.65).



Singapore Banks 2Q21 Earnings


Pick-up in loan growth.

  • DBS and UOB have achieved stronger loan growth of 5.9% and 6.4% y-o-y respectively in 2Q21. We saw growth from Singapore, Greater China and also Western countries. Both DBS and UOB have guided high single-digit loan growth for 2021 (previous: mid to high single-digit). OCBC’s loan growth was muted at 2.6% y-o-y and management guided mid single-digit loan growth.

NIM has largely stabilised.

  • OCBC and UOB registered relatively stable NIM of 1.58% (+2bp q-o-q) and 1.56% (-1bp q-o-q) respectively in 2Q21. DBS attributed the severe 4bp q-o-q compression in NIM to 1.45% to the deployment of surplus deposits at lower yields (cash with central banks increased S$19.6b or 59% y-o-y).

Sequential moderation in wealth management fees.

  • DBS’s, OCBC’s and UOB’s AUM grew 13%, 11% and 7% y-o-y respectively to S$285, US$125m and S$137b in 2Q21. Wealth management fees receded 18%, 10% and 16% q-o-q respectively as there was exceptionally high volume of customer activities and buoyant sentiment in 1Q21. Phase 2 (Heightened Alert) also limited interactions with customers at branches during the latter part of the quarter.

Asset quality stabilised.

  • NPL ratio was unchanged at 1.5% for all three Singapore banks. NPL formation for corporate loans has normalised to S$288m for DBS and S$360m for UOB in 2Q21. OCBC’s NPL formation was higher at S$662m due to exposures to manufacturing and building & construction sectors in Malaysia and Indonesia.

Provisions continued to moderate for DBS and UOB.

  • DBS incurred credit costs of only 8bp as it wrote back general provisions of S$85m. UOB similarly experienced moderation in credit costs from 29bp in 1Q21 to 20bp in 2Q21 as no further build-up of general provisions was required. OCBC’s credit costs were higher at 30bp due to additional general provisions for exposures to Malaysia, Indonesia and Myanmar.

Cap on dividends lifted.



ACTION


Recovery broadens as Singapore’s economy will further re-open in 4Q21.

  • Singapore will transit to a new normal of living with endemic COVID-19 amidst the rising vaccination rates. 61% of the population are already fully vaccinated against COVID-19 and another 13% have received the first dose. 80% of Singapore’s population is expected to be fully vacinated by September. Achieving the important milestone would pave the way for social distancing measures to be substantially eased in 4Q21.

Malaysia accelerated COVID-19 vaccination.

  • According to Our World In Data, 24% of Malaysia’s population are already fully vaccinated against COVID-19 and another 22% have received the first dose. Malaysia aims to vaccinate half of the eligible population in the four main economic hubs by September. According to Coordinating Minister for Immunisation Khairy Jamaluddin, the Klang Valley − Malaysia's most populous and also worst-hit region − had seen 96.7% of its adult population receive at least one dose of vaccine as of July. The government may also authorise the combined use of AstraZeneca and Pfizer-BioNTech COVID-19 vaccines on Malaysians if the data supports higher efficacy.

Maintain OVERWEIGHT.


SECTOR CATALYSTS

  • Gradual recovery in banks’ earnings and dividend due to decline in credit costs in 2021-2022.
  • Continued recovery of the Singapore domestic economy accompanied by easing of safe distancing measures.
  • Recovery in manufacturing and exports.


RISKS

  • Escalation of geopolitical tension and trade conflict between the US and China.





Jonathan KOH CFA UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-08-06
SGX Stock Analyst Report BUY MAINTAIN BUY 35.800 SAME 35.800
BUY MAINTAIN BUY 15.650 SAME 15.650
NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000



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