SINGAPORE (Oct 26): Phillip Capital is maintaining Sing Investments & Finance at ‘accumulate’ with a higher target price of $1.725 after 3Q17 net profit exceeded estimates on higher interest income and lower hiring charges and bad loans.

In 3Q17, Sing Investments expanded its Loan-to-Deposit Ratio (LDR) to 85.7% from a low base of 82% in 2016, by cutting high-cost deposits. Net interest income was also stronger q-o-q as it managed to pass the higher rates to clients.

In a Thursday report, analyst Jeremy Teong says this comes as a pleasant surprise because interest rates of customer loans declined q-o-q in 2Q17 and “we thought that NII growth for the rest of the year will be driven by interest expense reduction rather than higher customer loans interest rates”.

However, despite the increase in customer loan interest rates, the q-o-q decline in customer loans volume was marginal at 0.5%. In 3Q17, customer loan interest rates have also increased at estimated annualised rate of 30bps q-o-q.

“We estimate deposit costs have declined at an annualised rate of 2bps q-o-q. Put together, we estimate that Sing Investments could have expanded its NIM from 1.72% in 2Q17 to 1.92% in 3Q17,” says Teong.

Meanwhile, the improving economic condition and low macro volatility in Singapore in 3Q17 had kept non-performing loan formation stable. Therefore 3Q17 provision expense was lower y-o-y and q-o-q as net specific provisions declined. Teong expects low provision expense in 4Q17 too.

“We are revising our FY17 NIM forecast upwards to 1.88% from the previous estimate of 1.77% because of continued deposit cost management and positive loans volume and rate dynamics.” says the analyst in his outlook.

“On the back of sustainable economic improvement, we are particularly encouraged that the loans volume held up even with a 30bps annualised rate increase in customer loans interest rates q-o-q,” he adds

FY17 net interest income growth is also projected to improve 14.5% as customer loans rate are revised higher for 4Q17 estimates.

“Our FY17 PATMI estimate has also improved 10% to current $22 million from previous $20 million,” says Teong.

Shares in Sing Investments up 1 cent at $1.59.

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