To achieve those multiples again, DBS would need an ROE of 12.8% (CS 2011 forecast 10.2%), UOB 13.2% (CS 12.9%) and OCBC 12.2% (CS 11.0%) using Gordon Growth. So, even in 2011 (a “normalised” year), banks may not reach their recent peak P/B.
Although Singapore banks are enjoying some of the strongest consensus earnings upgrades among the Asian banks, 2011 profits are projected to be only marginally ahead of 1H07 (annualised).
We find bull-case ROEs in 2011 could be 1.5% higher than our base case. In that case, DBS would still fall short of the 12.8% needed to reach 1.9x P/B, while UOB/OCBC would be comfortably ahead.
UOB remains our top pick; while DBS should perform well when rates start rising. UOB is the highest ROE bank in Singapore and has built a sustainable 200-300 bp ROE lead over peers.
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Awesome advice here peeps, great to see the blogging community coming together!This is a nice post but you could write a bit more on the topic
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