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'Buy' banks ahead of FY2022 results, OCBC profit to exceed estimates: PhillipCapital

Jovi Ho
·3-min read

For OCBC, PhillipCapital forecasts PATMI of $2.03 billion, above the consensus estimate of $1.64 billion.

While interest rates started to flatten in January, PhillipCapital Research analyst Glenn Thum is bullish on Singapore’s banking sector, rating it “overweight” in a Feb 6 note with “buy” calls on all three local banks.

DBS will report its FY2022 results on Feb 13, while UOB will release its results on Feb 23 and OCBC will do the same on Feb 24.

Thum has target prices of $41.60 for DBS, $35.70 for UOB and $14.22 for OCBC.

For DBS, Thum forecasts revenue of $4.49 billion for 4Q22, lower than the consensus estimate of $4.55 billion, and PATMI of $2.02 billion, below consensus estimate of $2.16 billion.

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For UOB, Thum forecasts revenue of $3.32 billion, above the consensus estimate of $3.26 billion, and PATMI of $1.59 billion, above consensus estimate of $1.32 billion.

For OCBC, Thum forecasts revenue of $3.34 billion, above the consensus estimate of $3.31 billion, and PATMI of $2.03 billion, above consensus estimate of $1.64 billion.

“We remain positive on banks,” writes Thum. “Bank dividend yields are attractive with upside surprises due to excess capital ratios. Stable economic conditions and rising interest rates remain tailwinds for the banking sector.”

Interest rates flattening

Interest rates started to flatten last month, notes Glenn. “The 3M-SORA was down 3 basis points (bps) m-o-m to 3.05%, while the 3M-SIBOR was up 1 bps m-o-m to 4.25%.

The SORA m-o-m decrease was the first since August 2021 and came after eight months of double-digit m-o-m growth, while the SIBOR m-o-m increase was 22 bps lower than the previous month’s increase of 23 bps.

January’s 3M-SORA improved by 285 bps y-o-y and was 37 bps higher than the 4Q2022 3M-SORA average of 2.68%. January’s 3M-SIBOR improved by 381 bps y-o-y and was 29 bps higher than the 4Q2022 3M-SIBOR average of 3.96%.

Singapore loan growth declined in December

Overall loans to Singapore residents, which captured lending in all currencies to residents in Singapore, fell by 0.3% y-o-y in December to $814 billion.

“This was below our estimate of mid-single digit growth for 2022 as the rise in interest rates started to be more fully felt by consumers,” says Thum.

However, 4Q2022 loans grew by 0.8% y-o-y, as growth in October and November pulled up the decline in December. Business loans fell by 0.82% y-o-y in December, as business loans dipped by 1.49% for the month. Loans to the building and construction segment, the single largest business segment, grew 0.74% y-o-y to $169 billion, while loans to the manufacturing segment fell 1.01% y-o-y in December to $25.9 billion.

Consumer loans were up 0.56% y-o-y in December to $312.9 billion, aided by strong loan demand in the housing segment. Housing loans, which make up about 70% of consumer lending, grew 3.60% y-o-y in December to $222.5 billion for the month.

Total deposits and balances, which captured deposits in all currencies to non-bank customers, grew by 7.32% y-o-y in December to $1,716 billion.

The current account and savings account (CASA) proportion dipped slightly to 20.4% of total deposits, or $351 billion, as there was a continued move towards fixed deposits due to the high interest rate environment.

Singapore Exchange (SGX) is another beneficiary of higher interest rates, adds Thum. He has a “buy” call out for the listed bourse, with a target price of $11.71.

As at 11.14am, shares in DBS are trading 19 cents higher, or 0.53% up, at $36.18; while shares in UOB are trading 22 cents higher, or 0.72% up, at $30.76; and shares in OCBC are trading 9 cents higher, or 0.69% up, at $13.11.

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