Singapore Banks - CGS-CIMB Research 2022-09-30: Turning It Up

Singapore Banks - Turning It Up

Singapore Banks - DBS OCBC UOB | SGinvestors.ioDBS GROUP HOLDINGS LTD (SGX:D05) OVERSEA-CHINESE BANKING CORP (SGX:O39) UNITED OVERSEAS BANK LTD (SGX:U11)
  • The Fed has taken unprecedented action, raising interest rates by 75bp to 3.25% in Sep 22 in its bid to reel in persistent inflation.
  • In Singapore, investors have correspondingly been holding their breath on a recession in the US spilling over into Asian economies, which has somewhat resulted in an overhang on banks’ valuations. Although this translates to global economic growth further slowing amid higher unemployment rates, we think that Singapore banks will nonetheless remain beneficiaries from the pass-through of these higher rates into NIMs.
  • Factoring in forward Fed rate expectations (NIMs +c.30-50bp y-o-y in FY23F) and weaker growth (~4-5% in FY23F), we raise Singapore banks’ EPS by ~1-4% in FY22-24F. In tandem, we believe that sequential NIM expansion will peak around 4Q22F (vs. 3Q22F previously).
  • Reiterate Overweight on Singapore banks. We expect stronger sequential NIM expansion to continue driving the rerating of Singapore banks. Positive newsflow (to banks) of the Fed’s refreshed commitment to contain inflation supports our thesis. Further, capital ratios across the sector remain robust at ~13-15% in 2Q22.
  • DBS (SGX:D05) is our preferred pick for the sector, followed by OCBC (SGX:O39) and UOB (SGX:U11). Although DBS's share price is trading at 1 standard deviation above mean (currently trading at ~1.4x FY22F P/BV, above mean of 1.3x), we think DBS may outperform its peers as more meaningful NIM expansion comes through (given its more robust CASA deposit franchise, ~72% in 2Q22 vs OCBC’s 61%, and UOB’s 55%) over the coming quarters.
  • Risks to our estimated earnings upside include a sharper-than-anticipated rise in funding costs from attrition from CASA into fixed deposits or due to deposit-gathering efforts by banks, as well as possibly heftier credit costs to come as higher interest rates pressure borrower repayment capacities.
  • While we understand that property developer exposures in China remain contained, we think that SMEs (~6-13% of gross loans) could be a segment at risk if trade sentiment weakens. Our stress test of household balances in SG has found that all households servicing a mortgage for public housing (except those in the bottom 10% income levels) will remain below the 55% total debt servicing ratio threshold, even at a 4.5% per annum rates.
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Above is the excerpt from research report by CGS-CIMB.
Clients of CGS-CIMB may access the full report in PDF @ https://www.itradecimb.com.sg/.




Andrea CHOONG CGS-CIMB Research | LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2022-09-30
SGX Stock Analyst Report ADD MAINTAIN ADD 40.200 SAME 40.200
ADD MAINTAIN ADD 15.500 SAME 15.500
ADD MAINTAIN ADD 35.600 SAME 35.600




Read also CGS-CIMB's most recent report:
2022-11-16 United Overseas Bank - Still Positive On Growth In ASEAN

Target prices by 3 other brokers at UOB Target Prices.
Listing of broker reports at UOB Analyst Report.

Relevant links:
UOB Share Price History,
UOB Announcements,
UOB Dividends & Corp Actions,
UOB News Articles





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