DBS OCBC UOB 3Q21 Round-Up - UOB Kay Hian 2021-11-08: Continued Recovery Without Missing A Beat

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

DBS OCBC UOB 3Q21 Round-Up - Continued Recovery Without Missing A Beat

  • Banks saw a pick-up in loan growth in 3Q21. Asset quality was stable with moderation in credit costs at OCBC and write-backs in general provisions at DBS. The cyclical recovery will continue with ASEAN countries further reopening their economies in 2022. DBS and OCBC both provide 2022 dividend yield of 4.5%.
  • Maintain OVERWEIGHT. BUY DBS (Target Price: S$37.00) and OCBC (Target Price: S$15.35).



DBS (SGX:D05), OCBC (SGX:O39) and UOB (SGX:U11)'s 3Q21 results beat expectations.

  • Loan growth has picked up with DBS (SGX:D05), OCBC (SGX:O39) and UOB (SGX:U11) achieving expansion of 2%, 3.8% and 2.5% q-o-q respectively in 3Q21. On a y-o-y basis, DBS and UOB saw stronger loan growth of 9%, compared to 6.2% for OCBC.
  • OCBC’s severe NIM compression worsened by one-off factors. DBS and UOB experienced mild NIM compression of 2bp and 1bp respectively to 1.43% and 1.55% in 3Q21 due to competition and the flight to serve large high-grade corporate customers. OCBC’s severe NIM compression of 6bp q-o-q was worsened by one-off factors, such as interest reversals from downgrades of secured consumer loans to non-performing loans (NPL) in Malaysia and lower gapping income.
  • DBS, OCBC and UOB maintained double-digit growths in fee income of 11.3%, 13.6% and 14.6% y-o-y respectively, a reflection of higher volume of customer activities. Wealth management fees were relatively flat q-o-q. Nevertheless, DBS, OCBC and UOB continued to expand assets under management (AUM) by 13%, 6% and 6% y-o-y respectively. DBS grew contribution from transaction services by 18% y-o-y due to cash management and trade finance. DBS and UOB both registered growth in fees from cards of 13% y-o-y due to recovery in consumer spending.
  • Asset quality stabilised. NPL ratio was again unchanged at 1.5% for all three Singapore banks. We saw higher upgrades/recoveries of NPLs at S$355m for DBS (+73% q-o-q) and S$359m for OCBC (+42% q-o-q). NPL formation for corporate loans moderated by 30% q-o-q to S$251m for UOB.
  • DBS wrote back general provisions. OCBC’s credit costs moderated from 30bp in 2Q21 to 21bp in 3Q21, while UOB’s credit costs were maintained at 20bp. DBS wrote back general provisions of S$138m as portfolio quality improved in 3Q21. which was also its third consecutive quarter of write-backs in general provisions.
  • DBS declared dividend of 33 cents for 3Q21. Scrip dividend scheme is not applicable to the interim dividend.


ACTION

  • Recovery broadens as Singapore economy further reopens in 4Q21. Singapore will transit to a new normal of living with endemic COVID-19 amid the rising vaccination rates. Currently, 85% of its population has completed the full regimen/received two doses of COVID-19 vaccines. We anticipate further easing of safe distancing measures in 4Q21, which will lead to normalisation in consumer spending. Singapore’s international borders will also be reopened in a gradual and calibrated manner.
  • ASEAN countries to benefit from broader cyclical recovery in 2022. According to The World In Data, 75% of Malaysia’s population is already fully vaccinated, followed by Thailand with 47% and Indonesia with 28%. Regional countries are starting to reopen their economies. Singapore banks, particularly OCBC and UOB, will benefit from stronger growth in ASEAN countries in 2022.
  • Maintain OVERWEIGHT. Cyclical recovery remains intact. Economic growth is expected to accelerate as economies re-open with vaccination rates on the rise around the region in 2022. Our top pick for Singapore banks is DBS (BUY, Target Price: S$37.00), followed by OCBC (BUY, Target Price: S$15.35).
  • See reports:


SECTOR CATALYSTS

  • Gradual recovery in banks’ earnings and DPS due to decline in credit costs in 2021 and 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/ 2021-11-08
SGX Stock Analyst Report BUY MAINTAIN BUY 37.000 UP 35.80
BUY MAINTAIN BUY 15.350 DOWN 15.650
NOT RATED MAINTAIN NOT RATED 99998.000 SAME 99998.000



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