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DBS And UOB Posts Strong Earnings Amid Political Squeeze

Although the Straits Times Index (STI) continues to inch up again this week, this only tells half the story. Volumes have been low and there has been no real catalyst to drive the local market higher. All in all, most of the action seems to be still in penny stocks with familiar blue chips treading water.

This week the three big local banks are under the spotlight after their recent 4Q13 earnings announcements. The market’s reaction was mixed with UOB and OCBC spiking to its two-and-a-half week highs on a decent set of results while DBS crawled upwards on lower than predicted earnings.

Nevertheless, the three Singapore banks have posted robust earnings amid concerns that government curbs on property transactions and lending are set to slow growth in mortgages as well as central bank tapering act will raise funding costs in 2015.


Banking On DBS
DBS posted a 4Q13 net adjusted earnings of $802 million which marginally missed estimates as a result of lower than expected non-interest income and higher than expected expenses. Its 4Q13 loans growth remained healthy at 3 percent quarter-on-quarter and fees and commission continue to show good traction.

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A final dividend of $0.30 was declared, bringing the full year total dividend to $0.58, up 2 cents year-on-year. DBS continues to have an attractive and stable dividend yield of 3.5 percent.

In addition, DBS has set its sights on the next stage of investments, intending to invest $200 million over the next three years to drive a new digital banking organisation. This is in recognition that the world of banking has moved from branches to websites and to mobile and DBS wants to be prepared for this new world.

Phillip Securities maintains its “Accumulate” call, with a revised target price of $18.48. OSK maintains its “Buy” call, with a target price revised down to $19.20 (from $19.40). It continues to like the stock’s stronger earnings growth prospects relative to its peers.

Maybank believes DBS is the best positioned among the three Singapore banks under its coverage to take advantage of a rising interest rate environment. Maybank maintains its “Buy” call with a target price of $19.60 (previously $19.70).

Meanwhile, CIMB has a $20.28 target price. The average uplift among brokers is for a 14.8 per cent rise in the share price.

UOB On The Up?
UOB also announced its 4Q13 results last week. Net profits came in strong at $773 million (a 6 percent rise quarter-on-quarter), beating many analysts’ estimates and a surprise for a traditionally weaker quarter.

Net interest income grew 4.7 percent quarter-on-quarter on the back of stronger than expected loans growth of 3.1 percent. Fee income continues to show strength which is positive, ending off the last quarter higher by 6.9 percent, underpinned by strong loan-related fees.

UOB is liked by trader for its stable earnings profile and strong fees and commission growth traction. UOB has been focusing on its regional franchising, particularly on larger SMEs seeking solutions for intra-regional trades and growth.

UOB expects FY14 net profit growth to ease to 5 percent year-on-year on slower loan growth, but this will be sustained by fee income growth and benign credit costs. Its concerns over property cooling measures are already priced in.

Phillip Securities remains conservative on the bank’s ASEAN exposure in the short term and has a new target price of $22.33, maintaining its “Accumulate” rating. OSK maintains its “Buy” call, with a $24.00 fair value (down from $24.50).

OCBC has also lowered its fair value estimate, dropping from S$22.97 to S$20.94. It has actually downgraded UOB to “Hold”. However, Maybank Kim Eng maintains its “Buy” call on UOB with a slightly higher revised target price of $23.60 (previously $23.40). The average uplift among brokers is for a 13 percent rise in the share price.



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