Sector Overview

The Singapore Banking Sector provides traditional lending and depository functions, as well as other services in the areas of commercial banking, financial advisory, asset management, insurance broking and capital market services.

• The three local banks will be announcing their 4Q12 results in the upcoming weeks
• NIMs are expected to decrease slightly q-q, while loan balances to be within FY12 banks’ guidance
• Fees and commission and Non interest income are expected to decrease q-q due to weaker year-end market activities, and from a high base respectively.
• We upgrade DBS to “Accumulate”, while maintaining “Accumulate” on UOB, and “Reduce” on OCBC based on current share price.

What is the news?

The 3 local banks will be announcing their 4Q12 results, with DBS on 6 Feb, OCBC on 15 Feb, and UOB on 27 Feb.

How do we view this?

We expect the banks to post lower q-q results in 4Q12 results as we expect weaker year-end market activities, and base effects from a strong 3Q12. Y-y, DBS and UOB are expected to post higher core net profits, while OCBC is expected to post lower core net profits due to high noninterest income in 4Q11. Net interest margin is expected to be slightly lower on NIMs pressure. Loans growth is expected to be within managements’ guidance. Fees and commission may be lower q-q due to weaker market activities, while non-interest income is expected to decrease q-q from a high base.

For FY2013, we expect the banks to register stable income, while non-interest income may further surprise on the upside with the improving economy. We expect the banks’ overseas contributions to be a growth driver, as the banks gain further traction and benefit from the gradually improving market sentiments.

Investment Actions?

Since the last results season, the banks have generally traded in-line with the STI. Share prices declined sharply in Jan 2013, likely due to the announcements of further property cooling measures. Fundamentally, the banks remain strong, as presented above. We see upside potential for DBS and UOB, based on current share price, while noting the attractive dividend yields of these counters. We upgrade DBS to "Accumulate" (TP: $16.10) , while maintaining our "Accumulate" rating on UOB (TP: $20.95) and "Reduce" rating on OCBC (TP: $8.30), based on current share price. We present a more detailed analysis of DBS in our report dated 21 Jan 2013. We maintain our preference for UOB over DBS and OCBC.

Source: PhillipCapital Research - 21 Jan 2013