Banks kept at 'overweight' by UOB on Fed's dovish stance, dividend yield

Banks kept at 'overweight' by UOB on Fed's dovish stance, dividend yield

By: 
PC Lee
18/01/19, 02:28 pm

SINGAPORE (Jan 18): UOB Kay Hian is maintaining Singapore’s banking sector at “overweight” after the US Fed calmed the nerves of investors with its dovish disposition, which subsequently generated a relief rally.

“We maintain ‘buy’ for both DBS and OCBC, although we prefer OCBC,” says analyst Jonathan Koh in a Friday report. The research house has target prices of $28.50 and $13.82 respectively.

Fed’s narrative took a dovish turn in mid-Nov when Fed Chairman Jerome Powell highlighted potential headwinds buffeting the US economy in 2019, including a slowdown in growth overseas and and the lagged effect from the nine previous hikes in Fed funds rate since late 2015.

Powell reiterated that the Fed’s goal is to extend the economic recovery while keeping unemployment and inflation low. He also said that the Fed would have to rethink how much further interest rates should be raised and the pace of raising interest rates.

However, Koh says financial markets had wrongly interpreted that the Fed remains hawkish and was insensitive to the risk of slowdown in growth.

Investors were further spooked after the Fed raised the rate by another 25bp after the FOMC meeting in December.

Since then, nerves have calmed after the Fed repeatedly pressed home its dovish message. During a press conference in December, Powell mentioned that the Fed could afford to be patient on rate hikes if inflation stays below 2%.

Now, financial markets are confronted with the prospects of a protracted shutdown due to animosity between President Trump and Democrats controlled House of Representatives.

“A lengthy shutdown could damage consumer sentiment and retail sales, moderating growth in the real economy,” says Koh, meaning the stock market could resume its choppy flight path after the relief rally.

A successful trade deal between the US and China could extend the relief rally. However, geopolitical headwinds could return thereafter.

Meanwhile, the research house expects DBS, OCBC and UOB to provide attractive 2019 dividend yields of 4.8%, 4.1% and 4.8% respectively, thanks to the finalisation of Basel III reforms in Dec 17 has paved the way for banks to hike their dividend payout ratios.

As at 2.23pm, shares in DBS are trading at $25.17 or 11.1 times FY19F earnings while shares in OCBC are trading at $11.78 or 10.9 times FY19F earnings.

2019 GDP growth to ease to 'slightly above midpoint' of 1.3-3.5% forecast: MAS

SINGAPORE (Apr 26): MAS expects GDP growth to come in slightly above the mid-point of 1.3-3.5% forecast range in 2019, as growth momentum of the global economy has moderated at the turn of the year amid sluggish trade. This was according to the Guide to the Macroeconomic Review April 2019, released by the Monetary Authority of Singapore’s (MAS) Economic Policy Group on Friday morning. On the back of easing GDP growth, MAS has decided to maintain the current rate of appreciation of the SGD NEER policy band. This policy stance is consistent with a modest and gradual appreciation path of ....
Read More >>

CapitaLand Mall Trust kept at 'hold' by OCBC and Maybank on higher mall supply, soft retail sector

SINGAPORE (Apr 26): OCBC Investment Research says CapitaLand Mall Trust’s (CMT) 1Q19 results met its expectations. Gross revenue rose 10.0% y-o-y to $192.7 million while NPI jumped 11.5% to $140.1 million, forming 25.1% of its FY19 forecast. See: CapitaLand Mall Trust declares 3.6% higher DPU of 2.88 cents on higher income OCBC says Funan has already achieved high pre-commitment levels of 90%, and is on track to open in the middle of 2019 and will thus contribute to CMT’s earnings progressively from 2H19. However, the near-term outlook remains cautious given the higher supply, ....
Read More >>

Singapore's GLP plans US$3 billion IPO for its US warehouses

(Apr 26): Singapore-based GLP is planning an initial public offering (IPO) for its US operations that could raise about US$3 billion ($4.09 billion). GLP may seek to value the operations at more than US$20 billion, and the firm is said to have confidentially filed with securities regulators for the planned offering. Much of GLP’s US business stems from a 2014 deal to acquire IndCor Properties from Blackstone Group for US$8.1 billion. The offering could help GLP recoup funds after it was taken private by a management-backed consortium from the Singapore stock exchange last year. GLP ....
Read More >>