OCBC still bullish on banking stocks after a lacklustre FY18

OCBC still bullish on banking stocks after a lacklustre FY18

Michelle Zhu
26/03/19, 03:29 pm

SINGAPORE (Mar 26): OCBC Investment Research remains bullish on Singapore’s banking space while keeping its sector “overweight” with “buy” calls on both DBS and UOB, which have been given fair value estimates of $29.31 and $28.30, respectively.

Both stocks had dividend yields of 4.8%, with DBS and UOB trading at the respective book values of 1.3 times and 1.1 times, or at an average of 1.2 times historical book as at the close of Wednesday.

In a Tuesday report, OCBC analyst Carmen Lee notes that raising this average to 1.3 times book and factoring a 10% premium for DBS over the other two years –  as was the case in recent years – would bring the banks’ fair value estimates to “quite similar levels” as those projected by the research house.  

She argues that while 4Q18 results for Singapore’s bank stocks were down, this was “not a complete surprise” considering a weak global market, further highlighting that full year earnings still concluded at record highs for all three banks.

Lee’s positive sector view comes in spite of a fairly lacklustre performance for Singapore’s banking stocks in the year to date (YTD), which she says could be partially due to expectations of lower fee income and that there will not be any further Fed rate hikes for the remainder of the year.

The analyst nonetheless sees another record year for banks in FY19, albeit at a lower single-digit growth in terms in of earnings; making it therefore reasonable to expect the FTSE ST Financials Index (FSTFN) to trade back to the norm, or the 10-year average of 1.1 times book.

“Similarly, with projected record earnings in FY19, it is not unreasonable to expect a re-rating of the banking stocks back to the 10-year average, pending no deterioration in market conditions,” adds Lee.

As at 3:17pm, shares in DBS and UOB are trading at $24.99 and $24.95, respectively.

Hyflux gets non-binding letter of intent from China suitor

SINGAPORE (June 15): Hyflux has received another non-binding letter of intent (LOI) for a potential investment in the group by an investor based in China. In a Friday night filing, Hyflux says the investor is a subsidiary of a state-owned enterprise in the industrial field which works on a global scale to provide comprehensive power services. “Other fields of expertise of the investor’s holding company include wind and solar energy solutions, nuclear industry, medical technology and agriculture,” says Hyflux. See: Rags-to-riches tale goes sour for Hyflux founder Olivia Lum Se....

Hong Kong suspends China extradition bill

(June 15): Hong Kong’s leader suspended efforts to pass a bill allowing extraditions to China, in a dramatic reversal that she said was necessary to restore order in the Asian financial hub and avoid further violence and mass protests. Carrie Lam, Hong Kong’s chief executive, announced the legislative “pause” at a news conference Saturday, even as activists asked hundreds of thousands of residents who marched in protest last weekend to return to the streets and demand her resignation. Lam acknowledged that debate had shattered a period of relative calm in the former British colony, ....

Chip Eng Seng in joint $47.5 mil investment of China distressed property company

SINGAPORE (June 15): Chip Eng Seng and controlling shareholder Haiyi Investment are jointly investing RMB240 million ($47.5 million) in a distressed property company based in Taicang city in Jiangsu province, China. Chip Eng Seng says the investment will enable the project company to discharge its outstanding liabilities such that its assets will be unsealed and restart a project involving the development and construction of a residential development on a land area of 38,000 sqm, with a gross floor area of 111,111 sqm. The project company, effective controlled by local shareholder Ren We....