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Post Info TOPIC: Singapore Banks
KK


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UOB - CIMB
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Extracts fm CIMB Report dated 31-Oct-05,

Good showing but question of sustainability


  • Results above expectations; fee income, provisions and associates the positives. 3Q05 net profit of S$463m was above both our expectations (S$417m) and consensus estimates (S$412m). Overall, this was a decent set of results with strong fee income the key highlight. Strong fee income helped support the topline and UOB did not disappoint at the core pre-provision profit level. Subsequently, lower-than-expected provisions and higher associates earnings helped to add some glitter to the results 

  • Concerns remain on margins. Net interest income grew 1% qoq back of nascent 2% loan growth. This was unfortunately blunted by a 4bp decline in margins. The NIM differential between DBS (DBS SP, S$15.20, Neutral) and UOB has narrowed to just 6bps (DBS: 1.87%, UOB 1.93%), down from a gap of 57bps just two years ago. Competition in SME loans remains a concern for us. 

  • Challenge to maintain the topline in 4Q05. Strong fee income helped to keep fee income in line with our expectations this quarter. Although strong fee income was a key positive for UOB in 3Q05, the strong fee income performance might normalise in 4Q05 as some of it was partially one-off and market related. 

  • Overheads controlled, cost ratio at 38%. Overhead expenses were controlled and pre-provision earnings of S$574m were within our estimates. 

  • Low provisions and higher associates’ contributions boosted the bottomline. UOB had individual impairment writebacks in Singapore, contributing to a relatively low level of provisions. On top of that, strong contributions from associates helped to boost the bottomline. 

  • Target price lowered to S$15.30 from S$15.90, maintain Neutral. We cut our FY06-FY07 EPS by 4-5%, purely on the interest income line. Consequently, our target price is lowered to S$15.30. Despite share price underperformance in the past three months, we cannot see operational drivers just yet.



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    KK


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    UOB - CitiGroup
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    Extracts fm CitiGroup Report dated 28 -Oct-05,

    Seeking to issue preference shares, potential to improve capital efficiency


    • UOB will seek to issue tier-1 capital qualifying preference shares with the potential to improve capital efficiency. MAS regulations permits up to 30% of non-ordinary equity Tier-1 capital as preferred and hybrid securities 

    • UOB will hold an EGM 18 Nov 2005 to increase authorized share capital by creating 260,000 non-cumulative non-convertible preference shares in three different classes, denominated in US$ (Class A - 20,000 shares), S$ (Class B – 200,000 shares) and Euros (Class C – 40,000 shares)

    • Timing and size of the actual issue will depend on market conditions: UOB had the lowest Tier-1 ratio of 10.1% among the three Singapore banks as at June 2005, and can take advantage of relatively favorable pricing conditions to boost its capital levels

    • We are positive on this move if it leads to a more efficient capital structure and active capital management for UOB. We estimate that a release of 1% pt of Tier 1-capital would amount to S$0.60/ UOB share. UOB remains our least preferred of the three Singapore banks on core earnings performance


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    UOB - DBSVickers
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    Extracts fm DBSVickers Report dated 27-Oct-05,

    Proposes to increase share capital through creation of Preference Shares : Maintain Buy : TP: S$16.50

    UOB is convening an EGM to be held on 18 Nov 2005 to seek Shareholders’ approval for the following proposals:


    (a) increase in the authorised share capital of UOB by the creation of Preference Shares and proposed alterations to the Articles to incorporate the terms of the Preference Shares; and

    (b) authority be granted to the Directors for the issue of the Preference Shares.


    UOB proposed increase in authorised share capital would comprise the creation of:


    (i) 20,000 new Class A Preference Shares,

    (ii) 200,000 new Class B Preference Shares and

    (iii) 40,000 new Class C Preference Shares.


    The dividend rate(s) in respect of each class of Preference Shares would be at a fixed rate until the dividend re-set date (if any), and thereafter at a floating rate. Such dividend re-set date (if any) would be determined by UOB.

    DBSV: This is a positive development that would enable UOB to be more capital efficient, i.e. it is cheaper to issue preference shares from capital cost perspective. The other angle is that this allows Wee Cho Yaw to increase the capital of UOB without diluting his control of UOB as preference shares do not have voting rights. The preference shares can also allow UOB to return capital to shareholders without affecting its Tier One capital. The return of capital can be in the form of dividends or distribution in specie of investments. We are maintaining our Buy recommendation and target price of S$16.50.



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    DBS
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    Extracts fm CIMB Report dated 26-Oct-05,

    Realignment of mortgage rates

    DBS realigns mortgage rates. DBS adjusted its interest rates on home loan packages yesterday. Rates for floating-rate packages are up 25bp (to 2.5%) for the first year but down 25bp (to 3.0%) in the second year. Rates for fixed-rate packages are up 25bp (to 3.0%) for the first year but down 50bps (to 3.25%) for the second year.

    Restructuring of term structure, not raising of rates. We opine that this amounts to a restructuring of the term structure of its mortgage packages and not a clawback of margins. Effective interest rates remain largely the same for the floating-rate packages and are actually lower for the fixed-rate packages.

    Better aligned to SIBOR. We think that this realignment of mortgage rates comes on the back of a 40bp rise in SIBOR in the past three months. The last adjustment of mortgage packages took place when SIBOR was between 2.0-2.1%. With the 3-mth SIBOR now at 2.4%, the old first-year rate of 2.25% will mean that there is a negative spread immediately in the first year, with each new mortgage loan DBS disbursed by DBS. The resturucturing of the mortgage structure better aligns mortgage rates to SIBOR and enable DBS to earn a positive spread from the first year. We detect a more cognisant attitude towards profitability of mortgage products now within DBS and that can only be good for the industry. At the same time, the fact that rates were merely ‘re-structured’ and not raised reflects the existence of competition still in the mortgage market.

    Would not be surprised if competitors follow. We think that this mortgage strucuture is better. We would not be surprised if competitors followed DBS pricing strcuture in the wake of the move by DBS. Also as long as the 3-mth SIBOR continues to rise 2.5%, another round of mortgage rate hikes would not be surprising.



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    KK


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    Singapore Banks
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    SINGAPORE (XFN-ASIA) - DBS Group Holdings Ltd and United Overseas Bank Ltd are expected to report better results for their third quarter to September than for the second quarter or for the third quarter of last year, because of improvements in net interest income, analysts said.

    According to analysts polled by XFN-Asia, DBS will likely show third-quarter net profit in the range of 442-487 mln sgd, higher than the 441 mln sgd recorded for the second quarter and the 362 mln sgd a year before. UOB is seen to show third-quarter net profit in a range of 410-445 mln sgd, higher than the 409 mln sgd posted for the second quarter and the 371 mln sgd a year earlier. DBS and UOB will announce their third-quarter results on Friday.

    Daiwa Institute of Research analyst David Lum has the highest third-quarter net profit forecast for DBS, of 487 mln sgd, expecting the bank to show better net interest income and treasury earnings. He said DBS's 10 consecutive quarters of loan growth, its aggressive lending to small and medium enterprises and its car loans should manifest themselves in its financial performance. "That's why I am looking at a fairly strong improvement in net interest income," Lum said.

    CIMB-GK Research analyst Kenneth Ng projects DBS's third-quarter net profit at 465 mln sgd, driven by loan growth, loan re-pricing and strong investment banking and stockbroking operations.

    Standard and Poor's Equity Research analyst Winston Siay expects DBS's third-quarter net profit to come in at 453 mln sgd. "I don't think there is going to be a major swing from what you saw in the second quarter," Siay said, citing no significant change in operating trends for either DBS or UOB. Improvement in net interest income will be more pronounced in DBS than in UOB, he said, "given its more liquid balance sheet."

    Phillip Securities analyst Pauline Lee expects DBS's third-quarter net profit to be 448 mln sgd, with loan growth unlikely to sustain the strong surge in the previous quarter. She projects 8.5 pct loan growth for DBS and a flat margin of 1.86 pct.

    An analyst at a US brokerage who declined to be identified expects DBS's third-quarter net profit to be flat at 442 mln sgd, as its non-interest income was likely to have declined. "Generally the yield curve is still flat, so treasury earnings will probably still be somewhat suppressed," he said. Loans would not have grown as strongly as in the second quarter, when 11 pct sequential growth was reported. "I expected some of those to come off. They have already signaled that some of those loans were short-term, but on a year-on-year basis,you are still looking at probably around 13-14 pct year-on-year growth," he said.

    As for UOB, Lee of Phillip Securities expects it to turn in 445 mln sgd in net profit for the third quarter, with 6 pct growth in loans but the high cost of funds likely to have constrained margins.

    CIMB-GK's Ng sees 2 pct sequential growth in third-quarter net profit to 417 mln sgd for UOB, with both net interest income and non-interest income likely to show trifling rises of 1-2 pct.

    Daiwa's Lum expects UOB to show a small sequential rise in third-quarter net profit to 415 mln sgd, with a marginal improvement in net interest income and non-interest income either flat or having gained slightly. "It is not expanding in Singapore. The Thai operations will still need some time to move into a growth mode, so I would expect not to see that much difference in the second quarter," Lum said.

    Standard and Poor's Siay also said he expects UOB's third-quarter net profit to be 415 mln sgd. He said he has factored-in a slightly higher loan loss provision for UOB for the third quarter. The bank recorded 14 mln sgd in impairment charges in the second quarter.

    The analyst with a US brokerage he sees UOB's third quarter profit at 410 mln on the back of a small improvement in margins and mild loan growth.


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    Singapore Banks - OCBC
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    Extracts fm CitiGroup Report dated 14-Oct-05,


    • Bank NISP (OCBC holds 70.44% stake) has announced a IDR601.5b (about S$100m) rights issue, which will boost its CAR from 14.77% to about 19%
    • NISP is offering a 97 new for 500 old rights at IDR750 per share to raise a total of IDR601.5b. Aside strengthening the balance sheet, NISP has stated that it is raising its capital base with an intention to meet the criteria of “National Bank” status as outlined in the Indonesian banking sector masterplan
    • We would expect OCBC to fully subscribe for S$70m share of the rights and perhaps even subscribe for any rights not taken up.
    • OCBC can do this using existing cash funds with limited impact on its own capital base. As of June 2005, OCBC had an effective Tier 1 capital base of S$9,163m or 12.5% Tier-1 ratio
    • We maintain Buy (1L) rating on OCBC, Target Price S$7.10


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    Singapore Banks - UOB
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    Friday October 14, 12:57 PM
    PRESS RELEASE: UOB Completes PT Bank Buana Stake Increase

    The following is a press release from United Overseas Bank Ltd.

    Singapore, 14 October 2005 - Further to its announcements on 15 July 2005 and 3 August 2005, United Overseas Bank Limited is pleased to announce that its wholly-owned subsidiary UOB International Investment Private Limited ("UOBII") has completed the acquisition of an additional 30% of the issued common shares in P.T. Bank Buana Indonesia Tbk ("Bank Buana"). With the completion of the acquisition, UOBII's shareholding in Bank Buana has increased from 23% to 53% and Bank Buana has become a subsidiary of UOBII.

    The total consideration for the 30% stake comprising 1,729,872,821 issued common shares in Bank Buana is Rupiah 1,650,000,000,000 (approximately S$269 million), which was arrived at on a willing-buyer-willing-seller basis.

    The consideration is 2.59 times the unaudited book value of Bank Buana as at 30 June 2005. As at 13 October 2005, Bank Buana shares closed at Rupiah 950 on the Jakarta Stock Exchange. The net tangible tangible asset of Bank Buana as at 30 June 2005 was Rupiah 2,124 billion.



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    Singapore Banks
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    Extracts fm CLSA Report dated 12-Oct-05,

    Banking on property


    • With growing optimism on prospects of the local property market, banks are increasingly being viewed as indirect property plays
    • The Singapore property stocks index is up 45%YTD cf only 6% rise in the bank index
    • The 3 local banks own significant property assets (>S$2bn each) and carry revaluation surplus of 4-12% of their shareholders’ funds
    • While all 3 banks have decent scope to unlock value for their shareholders through securitising investment properties, we believe it is unlikely to happen over the next 1-2 years
    • Rather banks benefit from higher growth in housing loans and possible write-back of provisions due to rise in value of collaterals held against NPLs
    • OCBC’s (U-PF) P/Bx appears expensive, even after considering its larger property portfolio. Switch to DBS (O-PF) and UOB (O-PF)

    Banks – play on rising property prices

    With growing optimism on prospects of the local property market and with property counters having had a good run-up, banks are increasingly being viewed as indirect property plays. In this research note we analyse the property exposure of individual banks in terms of market value of properties held by them, the unrealised revaluation surplus and their outstanding housing loans.


    Market value of properties held by the 3 local banks exceeded S$2bn each in end-2004. This was S$2.6bn for UOB, S$2.5bn for OCBC and S$2.2bn for DBS. The value of these property assets is less than 20% of the respective bank’s shareholders funds, and as such they are not required to divest them under the MAS’ non-core asset divestment regulations.



    -- Edited by KK at 08:51, 2005-10-14

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    Singapore Banks : DBS
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    SINGAPORE (XFN-ASIA) - Merrill Lynch said it has upgraded its fair value for DBS Group to 20.0 sgd per share from 17.10 previously as it believes the stock is undervalued and has underperformed its peers despite its superior operating performance. "We think that DBS is poised to continue its operating outperformance, is relatively less expensive than the sector, and is in fact achieving substantial benefits for core earnings from rising interest rates," Merrill Lynch analyst Tony Raza said in a note.

    While DBS' rivals Oversea-Chinese Banking Corp and United Overseas Bank have been a key market focus as they appear more committed to capital management, Raza said DBS' own capital management initiatives are also starting to come through better than expected. While banks should benefit from improving employment and property reflation in Singapore, Merrill said DBS is uniquely positioned to benefit from this trend as it has the strongest deposit base.

    At 3.38 pm, DBS was up 0.30 sgd or 1.89 pct at 16.20 with 1.98 mln shares traded, UOB was up 0.10 sgd or 0.71 pct at 14.10 with 1.67 mln shares traded and OCBC was up 0.10 sgd or 1.59 pct at 6.40 with 4.87 mln shares traded.


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    Singapore Banks
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    Extract fm UBS Report,


    Upside potential


    Revision potential - With economic growth starting to show signs of a cyclical and structural rebound, we believe our earnings estimates may be vulnerable to revision. In particular, we believe credit growth could surprise on the upside while margins should also be supportive.


    Blue sky scenario - Not only can we expect better growth from small and medium enterprises, but also from consumers as more jobs are being created in the service sector, which typically pays higher wages. We believe there is potential for loan growth to rise from our current 5% assumption to 10% and for spreads to improve.


    Market pencilling in pedestrian growth - We believe bank share prices are pricing in pedestrian growth and no reflation benefit. Not only do we think growth will emerge but we are also starting to see signs of competition from foreign banks abating as they have been hit by a 60% YTD rise in interbank funding. Including surpluses from property revaluation, the sector trades at 1.3x book.


    The most leveraged - We believe DBS Bank is most leveraged to a stronger GDP-higher interest rate environment, given its low funding costs. It is followed by OCBC, which has the largest exposure to non-core property revaluation surpluses.



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    Extracted fm CitiGroup Report dated 3-Oct-05,


    Reflation: SIBOR surges, benefits net interbank lenders, mortgage rates could re-price up further



    • Reflation - DBS benefits (DBSM.SI, 1L, S$15.80, TP S$18.10): 3M SIBOR 2.38% near pre-2001 levels. DBS: largest net interbank lender, largest Singapore mortgage book and highest operational leverage of peers.
    • 1M-12M SIBOR rose an average 34bps in Sept 2005 while paradoxically muted loan growth has seen system LDR dip to 82.6%. SIBOR’s move likely influenced by Fed rates and higher inflation data.
    • Mortgage rates may rise further: Rising SIBOR lowers the likelihood of price competition from foreign banks, and firming property market sentiment may allow further mortgage rate rises. Banks raised rates around April and July; the lag effect to margins of this will show from 3Q05E
    • But funding costs are rising as well: 3M time deposit published rates at 0.25%-0.35% understate the sharp rise in funding costs over the past 6 months, where longer dated balances over S$50,000 are paying 1.5%-1.7%. We estimate that banks deposit costs have risen 30bps-50bps over 1H05
    • Flat yield curve hurts gapping profits, wealth management sales: the long end of the yield curve remains just 47bps above 3-mth money
    • Housing loans inched up 0.2%MoM: Despite improving sentiment for highend developments, it is early days for a full-blown property rally, and we view that mortgage drawdowns will only pick up with an estimated 1-2 year lag
    • Aug CPI jumped 0.7% yoy and 0.5% mom as higher fuel prices have started filtering through into prices in the form of higher petrol prices, fuel surcharges.
    • 2006E GDP forecast pared to 4.0% YoY (from +4.5%) on oil price concerns.

    Non-core assets–July 2006 deadline approaching



    • The 17 July 2006 deadline set by MAS for banks to divest non-core assets approaches. We detail what is left to be done and the estimated financial implications
    • UOB^ (UOBH.SI, S$14, 3L) – UOL, OUE and Hotel Negara could yield S$107m (S$0.07/UOB share) From the 3 companies we estimate UOB loses about S$59m in future pre-tax profit contribution (associate profits, rental income, dividends). If UOL’s 2.15% cross-holding in UOB (exchangeable bond lapsed 22 Sept unexercised) were divested, it could derive another S$95m (S$0.06/ share) of gains to UOB
    • OCBC (OCBC.SI, S$6.30, 1L) – Robinsons and Straits Trading: Although not formally disclosed, we assume OCBC needs to divest about 12% of each to bring the effective holding (inclusive of relevant Great Eastern stakes) below 10% threshold. This would derive a gain of S$161m (S$0.05/share), and an estimated S$23m loss of future pre-tax profits. Robinsons appears to be more straightforward (well defined business, cash-rich) while Straits Trading may be complicated by strategic holdings it carries in Malaysian financial institutions.
    • All three banks still have substantial property holdings, OCBC’s being the largest: An improving market may provide the impetus for OCBC to continue its recent sales of property developments (for example we estimate that Specialist Centre/Hotel Phoenix could derive a gain of S$256m (S$0.08/share)
    • ^Near-term market volatility and short-term trading patterns may cause the Expected Total Return to become temporarily misaligned relative to the hurdle for this stock's fundamental rating, as defined under our current system.


    -- Edited by KK at 17:45, 2005-10-10

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