DBS - Buy: New Target S$15.50; Raising EPS Estimates 2%-18%

Target S$15.50 (1.46x '09E P/B): DBS has retraced 10% from recent highs on concerns of sharply rising NPLs. But DBS' provisions-hit 2Q09 ROAE of 9.3% belies record pre-provision operating profits, and a PPOP ROAA of 1.73%, back to the 2007 peak. The P&L provisions cycle should start to normalize over 2010E for a 2011E ROAE of 12%. Our 12-month target has been reset to DBS' mid-cycle P/B multiple of 1.46x.

2Q09 pre-provision profit a record S$1.16bn: DBS' 2Q09 PPOP is up 30% vs. 2Q07 (the last economic cycle peak). Loan growth +29% over 2 years drove 8% net interest income growth despite NIM pressure from low S$ SIBOR, while basic bank fees remained resilient. Markets-related income has been a key boost to 2Q09 revenues, but operating costs are 4% lower than in 2Q07 despite a much larger balance sheet, for a 2Q09 cost-income ratio of just 35%.

2Q09 NPLs, +36%qoq, the area of concern: NPLs rose to S$3.7bn on a S$1bn rise in "rest of world" (Middle East and shipping) NPLs, but as "substandard" NPLs, mgmt do not expect large losses, stressing that 38% of all NPLs are fully current. We expect NPLs to peak by end-2010E, and provisions to return to "normalized" levels by 2011E, markets pricing in normalization ahead of that.

Raising 2009-11E EPS estimates 2-18%: We now project profit growth of +25% in '10E and +22% in '11E on [1] 3-7% loan growth; [2] modest NIM improvement to 210bps; [3] PPOP ROAA of 1.7%, [2] provisions falling from 133bps in '09E to 50bps in'11E. Our 2009E profit forecast of S$2bn remains 12% above Bloomberg consensus estimates.

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UOB - New Target S$18.60; Raising EPS Estimates 2%-20%

Target S$18.60 (1.76x '09E P/B): On the back of high 2Q09 provision charges, UOB has sold off 9% from recent highs. But despite annualized provisions of 188bps of net loans, UOB still reported a 2Q09 ROAE of 12.8% Our pro forma analysis suggests that UOB could achieve a 15% ROAE with provisions of 50bps. Two-thirds of 2Q09 charges were general provisions, which could fall rapidly if the economy improves. Our 12-month target has been reset to a P/B multiple of 1.76x vs. a 2009E ROAE of 13%.

2Q09 pre-provision profit a record S$937m: UOB's 2Q09 PPOP is up 18% vs. 2Q07 (the last economic cycle peak). Loan growth +23% over 2 years has driven net interest income growth of 19% on improving NIMs. Basic bank fees remained steady, other income has been lifted by investments gains. Operating costs are up just 3% vs. 2Q07, for a 2Q09 cost-income ratio of 36%.

2Q09 provisions 188bps, overly conservative? NPLs rose to S$2.5bn for a still reasonable 2.5% NPL ratio. Mgmt reiterated that there were a few lumpy NPLs, but no trend asset quality deterioration. We expect NPLs to peak by end- 2010E, and provisions to return to "normalized" levels by 2011E, but markets should price in normalization well ahead of that.

Raising 2009-11E EPS estimates 2-20%: We project EPS growth of +17% in '10E and +21% in '11E on [1] 2-7% loan growth; [2] NIMs easing to 233bps; [3] PPOP ROAA of 1.9%, [2] provisions falling from 130bps in '09E to 50bps in'11E. Our 2009E forecast of S$1.9bn is 9% above Bloomberg consensus.

Great Eastern - Raising Target to S$15.30 on Improving Outlook

set at 1.25x P/EV: Recovery of equity, and stabilization of debt markets should lift GEH's performance, and we now view 1Q09 was the cycle trough for premium sales and new business value. We treat the 3Q09E S$250m provision for "GreatLink Choice" redemption as a one-off, just like the S$213m Malaysia RBC gain in 1Q09. A possible 30% sale of GE Life Malaysia (GELM) may cost S$43m in FY08 profit (15% of group) but generate over S$0.5bn in proceeds.

2Q09 profit S$98m, in line: (1Q: S$237m; S$42m core) premiums +6%qoq to S$1.25bn. Core insurance profit S$128m (1Q: S$65m): par fund profit S$27m, non-par profit S$77m, ILP profit S$23m. 1Q had S$213m (S$195m net of tax) gain from change to risk-based capital in Malaysia. 1H09 DPS S$0.05/share.

GreatLink Choice redemption offer: GEH is making a one-time redemption offer to policyholders of this product, whose market value remains at a steep discount to par due to its underlying CDO investments. The 5 tranches of this product had invested premiums of S$594m, a Jun-09 NAV of S$217m and coupons paid of S$48m. Making some assumptions on redemption, GEH will make an estimated S$250m provision to be reflected in its 3Q09 results.

Possible GELM 30% divestment: With a FY2008 EV of S$1.64bn and FY2008 net profit of S$144.7m, 30% of GELM may generate over S$0.49bn (S$1.04 per GEH share) in sale proceeds, but at the loss of about S$43m in income contribution based on FY2008 profits (15% of GEH FY2008). In July 2009, GELM began a formal bancassurance partnership with OCBC Malaysia, distributing life products through its 29 bank branches.