荷兰银行：新加坡银行业研究报告2009年4月

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Banks
Upgrading Singapore banks
We believe it is time to turn more aggressive on Singapore banks. We see pre-tax
operating profit support from rising NIMs, driven by loan re-pricing and market
share gains. Bad debt charges are likely to rise further, but stress testing leaves
TCE unaffected. We think valuations for DBS and OCBC remain attractive.
Key recommendations & forecasts
Name Rating Current
price
Target
price
Up /
downside
FY10F
P/E
FY10F EPS
growth
FY09F
P/TCE
FY09F
Cash ROE
FY10F
Yield
DBS Buy 9.32 11.00 18.0% 11.4 22.2% 1.1 10.4% 5.2%
OCBC Buy 5.78 7.00 21.1% 11.3 17.9% 1.5 13.3% 5.2%
UOB Hold 11.22 11.00 -2.0% 9.1 23.3% 1.9 21.4% 4.5%
Priced COB 17 April 2009
Source: ABN AMRO forecast
Rising net interest margins should support revenue and PPOP
An often overlooked element as a credit cycle turns down is that banks are able to increase
loan spreads to compensate for greater credit risk. We estimate loan spreads doubled yoy in
1Q09 and are more than 50% higher qoq. Coupled with market share gains in Singapore
(58% combined market share at FY08, up 200bp since 1H08) as foreign banks limit RWA
growth, this suggests a sustainable period of rising NIMs (we forecast an average NIM
improvement of 10bp over the next two years). This should more than offset the ongoing
weakness in other revenue lines and support PPOP. Fewer gapping gains are likely
(especially vs a very strong 4Q08), but this seems fully reflected in our estimates.
Bad debts rise, but stress testing leaves TCE robust
Bad debt charges will likely continue to rise, but no one knows by how much. Our TCE stress
test suggests a maximum tolerance of 300bp (average) of bad debt charges. This is three times
higher than our FY09F peak bad debt charge of 105bp (average) and also higher than peak
bad debt charges post the Asian financial crisis (236bp) and 2001 recession (62bp). In other
words, we believe TCE should remain robust, even in a worst case scenario. Our analysis
suggests that at our base case (223bp three-year cumulative bad debt charge), Singapore
banks will generate a combined S$5bn in surplus capital, making growth in book value over the
next three years seem a near certainty and hence providing further valuation support.
Look through 1Q09 weakness to positive operating trends
1Q09 results are out in the first week of May and are likely to be universally weak. We forecast
a 51.1% yoy and 15.9% qoq profit decline. Some of this weakness could carry over into 2Q09.
We urge looking through this to potential rising margins, market share gains and strong
capitalisation, which should drive an earnings recovery in 2H09F and FY10F. Given improving
sentiment on global financials, we would not wait for the post results season to buy.
Buy DBS and OCBC
We raise our target prices across the board on higher NIMs. We reiterate our Buy call on
DBS (1.1x 2009F P/TCE) and raise OCBC (1.5x 2009F P/TCE) to Buy. UOB (1.9x P/TCE) is
a Hold.
Contents
Interest income supporting operating profit 3
We believe further improving loan spreads in Singapore, coupled with a durable
pricing cycle, market-share gains and a shift to low-cost deposits, will support net
interest income, and hence PPOP, over the next two years.
Strong interest income growth 3
Consistent with pricing for a recession 4
A durable pricing cycle 5
Further supported by deposit mix shift 5
Volume growth is less important than margin 6
Bad debt cycle: Stress testing TCE 8
Stress testing suggests that TCE could tolerate a rise in bad debt charges to 300bp,
well ahead of any realistic expectations. The recovery in financial institution bond
prices further reduces the risks to TCE. The sector remains surplus capital
generative.
Bad debt charges remain a ‘known unknown’ 8
Stress testing tangible common equity 8
Receding risk of writedowns 10
Capital surplus generation suggests TCE could grow 12
Look through 1Q09 weakness 13
1Q09 results are likely to be universally weak and we forecast an average 51% yoy
and 16% qoq profit decline. Look through these numbers to signs of an earnings
recovery in the second half of 2009F and into 2010F.
1Q09 could show further weakening 13
Look out for the following 13
Dashboards 15
Company profiles 21
DBS Group Holdings 22
OCBC 28
United Overseas Bank 34

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