Recent checks suggest that the sector has held up well in the past 2-3 months. Specifically, revenues are still robust while overall asset quality has remained fairly stable. As a result, we raise our earnings forecasts by 6%-20% to adjust for higher non-interest income to reflect stronger fee income and capital market activity. Consequently, we adjust our price targets up by 1%-5%.
Recent financial market stability relative to the last two quarters should result in positive BV adjustments as banks mark-to-market their securities portfolios. While difficult to quantify, we think that a 30% write-back from what was written down last year is highly plausible, which could lead to a 2%-6% increase in BV.
Asset quality was stable QoQ in 2Q09 (1Q09 gross NPL: 1.8%-2.1%). At this rate, our gross NPL forecast (Dec 09: 4%) would seem too conservative. Nevertheless, provisioning charges will remain elevated as banks are likely to provide more for the sake of prudence. We still expect net provision charge of 1.5% of avg net loans in 2009E and 1.3% in 2010E. We think this is the key reason why our forecasts are 4%-11% below 2009-2010 consensus for OCBC and DBS.
With a stable SIBOR since Dec 08 (3-mth SGD SIBOR: 0.68%), we think NIMs have troughed. NIMs should remain stable to positive as loans are repriced on higher credit spreads. However, we believe this phenomenon is already largely expected by market watchers. Meanwhile, we continue to expect anemic growth in 2009 with low single digit loans growth at best.
DBS Group
Our S$12.50 PO (ADR PO: US$34.33) is derived using a modified Gordon Growth dividend discount model (DDM) that assumes an 10.5% sustainable ROE, 9.8% cost of equity and 4% long-term growth rate. At our PO, DBS would trade at 1.1x 2010E BV. Risks: (1) a slowdown in the Singapore and/or Hong Kong economies, which would depress loan growth, and (2) a sustained low SIBOR, which would compress its net interest margins. Upside risk would be a faster than expected upturn in Asian economies and markets.
OCBC BANK
We have set our PO at S$7.25 using a modified Gordon Growth dividend discount model (DDM). Our PO equates to 1.4x 2010E P/BV, wherein we have assumed a 11% sustainable ROE, 4% long-term growth rate and 9.1% cost of equity. The key risk is volatility from exposure to the emerging markets of Malaysia and Indonesia. Also, OCBC has greater mass market consumer exposure compared with its Singapore peers for which it may suffer comparatively higher credit losses during economic downturns.
United Overseas Bank
Our PO of S$15.55 (ADR PO: US$21.36) for UOB is based on 1.5x Dec 10E BV using a Gordon Growth dividend discount model. The fair-value PBV multiple reflects an 11.5% sustainable ROE, 4% long-term growth rate and 9.1% cost of equity assumption. Risks: (1) Regional macroeconomic and specific credit quality risks from its banking operations in Thailand, Indonesia and Malaysia, (2) banking franchise in Thailand could take impairment charges if the political and economic environment were to deteriorate, and (3) expansion into SE Asia represents a move out of its traditional core markets of Singapore and Malaysia.
Click here for more Banks and Financial Institutes Technical Analysis
Sponsored Links
Comments
No response to “Singapore Banks - Wait to pull the trigger”
Post Comments (Atom)
Post a Comment |
Post a Comment