CFA Society Singapore
SINGAPORE (Sept 18): Even as Singapore gears up on its cashless payments ambitions, Maybank Kim Eng Research says higher adoption of e-payments could raise the banks’ earnings in FY17-19E by as much as 9%.
According to Maybank, the bulk of banks’ cards fees come from merchant discount rates (MDR) and net interchange fees. Assuming that some 70-90% of banks’ card fees in Singapore are related to such fees, this translates to Singapore banks earning between $77 million and $388 million in fees in FY16.
“Our analysis focuses on impact on card fees if 40-70% of expenditure in Singapore shifts from cash to cashless payments,” says Maybank analyst Ng Li Hiang. “Using some broad assumptions, we estimate this could raise banks’ FY17-19 profits by 3-9%.”
However, the analyst cautions that the analysis only considers banks’ cards fee.
“Potential disruption in the payments space can have wider negative implications to banks,” she says.
To be sure, it is still unclear how payments will be disrupted by emerging fintech and e-commerce competitors. “Banks’ cards’ revenues may shrink should there be mass adoption of cashless payments through bank transfers/banking accounts, which usually do not incur additional charges for merchants and consumers,” Ng adds.
As such, Maybank is keeping its “neutral” stance on Singapore banks.
Ng’s preferred pick for the sector is United Overseas Bank (UOB), due to its “better pricing discipline and sensitivity to re-pricing intervals.”
Maybank has a “buy” call on UOB, with a target price of $26.40.
Meanwhile, the brokerage has “hold” recommendations on DBS Group Holdings and Oversea-Chinese Banking Corp (OCBC), with target prices of $21.50 and $11.05, respectively.
As at 12.30pm, shares in UOB are trading 40 cents higher at $23.45 or 10.6 times FY17 estimated earnings; shares in DBS are trading 43 cents higher at $20.49 or around 10 times FY17 estimated earnings; and shares in OCBC are trading 15 cents higher at $11.10 or 11.2 times FY17 estimated earnings.