April 15, 2015
Singapore: Banks Equity Research
1Q15 Preview: NIM uplift, but watch for trade finance headwind Banks to see benefit from rising short-end SG rates Singapore banks look poised to enjoy stronger profitability as NIMs are likely to rise in 1Q15 led by higher Singapore short-end rates (3M SIBOR, 3M SOR) which have trended up by 57bp/17bp since January. We expect banks’ NIMs to continue on an upward trajectory given the re-pricing time lag for SIBOR/ SOR as well as our forecast for rates to continue to rise over the next two years. We see DBS benefiting the most from rising short-end rates in the longer term given its high composition of low cost funding and OCBC the least. For a 1% rise in short-end SG rates, our sensitivity analysis shows 2015E ROE expansion of 108bp for DBS, 59bp for UOB and 42bp for OCBC.
But weakness in trade finance demand to add some pressure Trade finance loans from Chinese corporates are on a decline, underpinned by the narrowing of the cost differential from borrowing US$ offshore vs onshore as well as the continued depreciation of RMB/US$. We see this likely to impact SG banks in 1Q, especially DBS, with up to 14% of its loan book from China trade finance. We see a two-fold impact: 1) weaker loan growth, and 2) margin pressure, as when trade loans roll off, banks will be faced with excess liquidity in the interim which will have to be reinvested, likely in lower-yielding securities. We see DBS facing the strongest headwinds given its greater-than-peers exposure to China trade loans.
VALUATION SUMMARY
Ticker Rating Currency Current Price 12-m Target Price Potential Upside (%)
DBS DBSM.SI Buy* S$ 20.40 22.90 12
UOB UOBH.SI Neutral S$ 23.32 25.10 8
OCBC OCBC.SI Neutral S$ 10.70 11.10 4
11.5 9.4 1.3 1.2 2.8 2.9 11.5 13.0 1.2 10.0
11.4 10.0 1.3 1.2 3.3 3.4 11.6 12.2 1.4 11.9
11.4 10.3 1.3 1.2 3.5 3.7 12.3 12.4 1.5 10.9
Key Ratios 2015E 2016E 2015E P/B (X) 2016E 2015E Div Yield (%) 2016E 2015E ROE (%) 2016E Median P/B (X) ROE (%) 1997-2014 P/E (X)
* On Conviction List
Closing price as of April 13, 2015, 12-month target prices are based on residual income model (RIM). Source: Company data, Goldman Sachs Global Investment Research
DBS (CL-Buy) still our preferred stock among the Singapore Banks We fine-tune PT/EPS estimates for the SG banks. We retain CL-Buy on DBS despite outperformance post 4Q results as it should benefit most from rising short-end rates, with 2014-17E ROA set to expand 40bps vs peers of 17bps.
1Q results preview: Decent earnings expected Singapore banks will kick off 1Q15 results on April 27. We forecast 1Q average net profit of +16.4% qoq with: (1) NIM to be a mixed trend, with the benefit from rising short-end SG rates being offset for those with a larger trade book due to falling trade loans. UOB should see the strongest rise in NIM, +5bps qoq vs flat for DBS, (2) fee income growth to rise for DBS and OCBC from a pick-up in market activities, while likely remaining flattish for UOB, and (3) lackluster credit growth, due to weaker domestic retail growth and falling demand from trade finance. We expect qoq core earnings to be the strongest for DBS, +32%, and weakest for UOB, +3%. Melissa Kuang, CFA +65-6889-2869
[email protected] Goldman Sachs (Singapore) Pte Ben Koo +65-6889-2483
[email protected] Goldman Sachs (Singapore) Pte Nicholas Umar +65-6889-2492
[email protected] Goldman Sachs (Singapore) Pte Selvie Jusman +65-6654-5016
[email protected] Goldman Sachs (Singapore) Pte
The Goldman Sachs Group, Inc.
Goldman Sachs does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification and other important disclosures, see the Disclosure Appendix, or go to www.gs.com/research/hedge.html. Analysts employed by nonUS affiliates are not registered/qualified as research analysts with FINRA in the U.S. Global Investment Research
April 15, 2015
Singapore: Banks
Likely a decent 1Q15 with further NIM upside in subsequent quarters Exhibit 1: DBS has been the best performer since 4Q14 results
Exhibit 2: All three banks saw downward FY15-17 consensus EPS revisions since the 4Q results
Relative share price performance since 4Q results
Post 4Q EPS changes
Price Performances (Post 4Q results rebased to 100) 106
DBS
Post 4Q Changes of Bloomberg EPS Est (%) 0 -0.1
-0.1
105
-0.3
-0.4
104 103
-0.8
-1
102
-0.5
-0.5
OCBC
101 STI
100
UOB -1.7
99
-2 -2.1
98 97 96 18-Feb
28-Feb
10-Mar
20-Mar
30-Mar
9-Apr
-3 OCBC
DBS
OCBC
UOB
DBS 2016E
2015E
STI
UOB 2017E
Source: Datastream.
Source: Bloomberg.
Exhibit 3: We anticipate weaker loan growth in 1Q15
Exhibit 4: We forecast slight NIM expansion in 1Q15 except for DBS where we anticipate flattish NIMs
Quarterly yoy loan growth
Quarterly NIM and 3M SIBOR % YoY Loan Growth 30
NIM (%) 2.0
25
1.9
3M SIBOR (%) 1.10 1.00 0.90
20
OCBC
0.80
1.8
UOB 0.70 DBS
1.7
15
0.60 OCBC 0.50
1.6
10
0.40
DBS
OCBC
UOB
DBS
OCBC
UOB
4Q14
3Q14
2Q14
0.30
1Q14
4Q14 1Q15E
4Q13
3Q14
3Q13
2Q14
2Q13
1Q14
1Q13
4Q13
4Q12
3Q13
1Q15E
DBS
2Q13
3Q12
1Q13
2Q12
4Q12
1Q12
3Q12
4Q11
2Q12
3Q11
1Q12
2Q11
4Q11
1Q11
UOB
5
1.5
3M SIBOR
Source: Company data, Goldman Sachs Global Investment Research.
Source: Company data, Goldman Sachs Global Investment Research.
Exhibit 5: Non-interest income is expected to rise for all banks, with DBS leading the growth
Exhibit 6: Anticipating fairly stable NPL from 4Q Credit cost and NPL ratio
Quarterly notional non-interest income S$mn Quarterly Non Interest Income (S$ mn) 1,180
Credit Cost (bps) 35
NPL Ratio (%) 1.6 32
32 1,080
1.4
30
30
30 1.2
980
26
DBS
25
24
24
0.8
22
880
20 OCBC
780
20
19
19
1.0
0.6 17 0.4
15 680
UOB
0.2 10
580 1Q13
2Q13 OCBC
3Q13
4Q13
1Q14
2Q14
UOB
3Q14
4Q14
1Q15E
DBS
Source: Company data, Goldman Sachs Global Investment Research.
Goldman Sachs Global Investment Research
0.0 2012
2013 2014 1Q15E OCBC 2012
2012 2013
2013 2014 1Q15E UOB 2014 1Q15E
2012
2013 2014 1Q15E DBS NPL Ratio
Source: Company data, Goldman Sachs Global Investment Research.
2
April 15, 2015
Singapore: Banks
Margin inflexion point as rates rise Singapore banks look poised to enjoy stronger profitability with margins likely to expand as early as 1Q15 on the back of higher short-end rates in Singapore. We expect margins to continue on an upward trend given the 3/6 months re-pricing time for SIBOR/SOR as well as our forecast that SIBOR will continue to rise over the next two years. Our economists forecast 3M SIBOR to rise to 1.25% by end-2015E, 1.83% by 2016E and 3.03% by 2017E from 1.03% as of 13 April 2015. Among the three banks, we continue to see DBS as best placed to benefit from rising shortend rates despite margin pressures from its likely declining trade loan book in 1Q15 given its strong liquidity franchise with the highest composition of low cost funding. In our sensitivity analysis – assuming all else is equal - a 100 bps rise in Singapore short-end rates could lead to 2015E ROE expansion of 108bps for DBS, 59bps for UOB, and 42bps for OCBC. Exhibit 7: Short-end rates in Singapore have moved up, underpinned by an appreciating USD and easing monetary stance…
Exhibit 8: …a positive for Singapore banks’ margins, with DBS likely to benefit the most, in our view 3M SIBOR, Fed Fund Rates and NIM
3M SIBOR and 3M SOR 3M SIBOR/ SOR (bps)
3M SIBOR/ FED Fund Rates (%) 6
NIM (%) 2.5
120 110 100
5
2.3
90 80
3M SOR + 17 bps
4 2.1
70 3
3M SIBOR + 57 bps
60
1.9
50
2
40 1.7
30
1
20
3M SIBOR
0
3M SOR
DBS
UOB
OCBC
3M SIBOR
4Q17E
2Q17E
4Q16E
2Q16E
4Q14
4Q15E
2Q15E
2Q14
4Q13
2Q13
4Q12
2Q12
4Q11
2Q11
4Q10
2Q10
4Q09
2Q09
4Q08
2Q08
4Q07
2Q07
4Q06
2Q06
4Q05
2Q05
4Q04
2Q04
1.5
4Q03
Apr-15
Mar-15
Jan-15
Feb-15
Dec-14
Oct-14
Nov-14
Sep-14
Jul-14
Aug-14
Jun-14
Apr-14
May-14
Mar-14
Jan-14
Feb-14
Dec-13
Oct-13
Nov-13
Sep-13
Jul-13
Aug-13
Jun-13
10
Fed Fund Rate
Source: Bloomberg.
Source: Bloomberg, company data, Goldman Sachs Global Investment Research.
Exhibit 9: …underpinned by its strong liability franchise with DBS having the highest CASA composition among the local banks
Exhibit 10: UOB has the highest exposure to S$ loans with DBS trailing in second place Composition of loan book currency, 2014
2014 Total funding composition Composition of Loan Book by Currency (%)
Composition of Interest Bearing Liabilities (%)
100
100
8
10 90
4
4
80 70
16
90
7
80
25
70 51
60 43
50
50
40
40
30
12 12
37
60
17 35 27
30
30 20
15
49 37
35
20
54 39
37
10
10
0
0 DBS CASA
UOB Fixed Deposits
Interbank
Source: Company data.
Goldman Sachs Global Investment Research
OCBC Other Borrowings
DBS
OCBC S$
US$
HK$
UOB Others
Source: Company data.
3
April 15, 2015
Singapore: Banks
Exhibit 11: DBS is the best placed to enjoy earnings expansion from a rise in Singapore short-end rates, underpinned by its strong liability franchise Singapore banks sensitivity analysis to 100 bps increase in Singapore short-end rates Sensitvity of Earnings to Rising Singapore Short‐End Rates Interest Earning Assets (S$) 2015E DBS UOB OCBC
Loans Fixed
Float
23,103 16,658 15,936
92,412 94,398 63,742
Interest Bearing Liabilities (S$)
Interbank
Securities
17,259 613 923
21,524 13,733 19,486
Deposits Current
Savings
Fixed
24,258 22,861 19,819
108,740 28,727 26,707
15,183 65,314 45,026
NIM sensitivity analysis to increase in SIBOR rate of
Interbank
Securities
% of Fixed Loans
S$ LDR
% of CASA
Total S$ Loans
Total % S$ Loans
6,203 1,684 615
2,333 3,352 1,478
20% 15% 20%
78% 95% 87%
90% 44% 51%
115,515 111,056 79,678
38% 52% 35%
Interbank
Securities
% of Fixed Loans
S$,US$,HK D LDR
% of CASA
Total S$, US$,HKD Loans
Total % S$, US$,HKD Loans
13,842 7,896 15,456
36,628 20,953 17,740
20% 15% 20%
91% 87% 90%
64% 44% 44%
257,762 149,548 170,168
86% 70% 75%
100bps 100bps SIBOR impact
2015
DBS UOB OCBC
GSe Group NII (S$mn)
GSe Group NIM (%)
Interest Income (S$mn)
Interest Expense (S$mn)
Change in Group NII (%)
7,329 5,018 5,592
1.78 1.75 1.75
1,204 1,019 744
715 816 584
6.7 4.0 2.9
2015E Change in 2015E Change in Change in Group NIM EPS (%) ROE (bps) (bps)
12 7 5
9.4 5.0 3.4
108 59 42
Sensitvity of Earnings to Rising Singapore/US/ Hong Kong Short‐End Rates Interest Earning Assets (S$, US$, HK$) Loans
2015E
DBS UOB OCBC
Fixed
Float
51,552 22,432 34,034
206,210 127,116 136,135
Interest Bearing Liabilities (S$, US$, HK$) Deposits
Interbank
Securities
38,512 21,547 34,808
48,028 21,888 25,205
Current
Savings
Fixed
57,900 34,318 37,321
125,246 40,737 45,661
101,118 97,162 106,665
NIM sensitivity analysis to increase in SIBOR/SOR/FED/HIBOR rate of
S$, US$, HKD DBS UOB OCBC
GSe Group NII (S$mn)
GSe Group NIM (%)
Interest Income (S$mn)
Interest Expense (S$mn)
Change in Group NII (%)
7,329 5,018 5,592
1.78 1.75 1.75
2,687 1,596 1,835
1,896 1,339 1,515
10.8 5.1 5.7
19 9 10
15.2 6.3 6.7
Interbank
Securities Current
Deposits Savings
Fixed
100% 100% 100%
50% 50% 50%
0% 0% 0%
45% 45% 45%
100% 100% 100%
Loans
Assumptions DBS UOB OCBC
100bps
100bps SIBOR/FED/HIBOR impact
2015E
Fixed
Float
0% 0% 0%
100% 100% 100%
Change in 2015E 2015E Change in Group NIM Change in EPS (%) (bps) ROE (bps)
174 75 84
Interbank
Securities
100% 100% 100%
50% 50% 50%
Source: Company data, Goldman Sachs Global Investment Research.
Goldman Sachs Global Investment Research
4
April 15, 2015
Singapore: Banks
Slowing trade finance to hurt loan growth and margins HK system trade finance loans hit negative growth and Singapore (ACU + DBU) general commerce loans growth fell to zero percent for the first time in February 2015. We believe the weakness in trade finance is largely due to the weak demand from offshore China related-trade demand, mainly relating to carry trades, which have previously supported strong trade growth for banks. We see this weakness underpinned by the narrowing of the cost differential from borrowing US$ offshore vs onshore (Exhibit 12) as well as continued depreciation of the RMB against the US$ as the latter currency continues to strengthen (Exhibit 13). We see this likely to impact Singapore banks loan growth especially for DBS which has up to 14% of its loan book in China trade finance (Exhibit 15). Hence we have lowered our loan growth forecast for all the SG banks, with greatest cut for DBS, to 6.4% in 2015E vs 8% previously. That said, we note the sensitivity of loan growth to EPS is small for the banks, at no more than a 0.45% fall in EPS from a 1% lower loan growth. The other interim impact on falling trade loan demand is the pressure on margins. As trade loans roll off, banks will be faced with excess liquidity in the interim. If these deposits backing the trade loan cannot be rolled off or lent out in time, banks would have to place them into lower-yielding money market securities, which would put pressure on margins. We see this as the most likely case for banks in 1Q, with DBS to face the strongest headwinds given its greater-than-peer exposure to China trade loans. Thus for 1Q, we forecast DBS margins to remain flat qoq, with NIM expansion in its Singapore dollar loan book to be offset by pressures from falling trade loans. Going forward, we anticipate banks will focus more on treasury management, and thus expect margins to pick up, aided by expanding Singapore NIMs from rising short-end Singapore interest rates. Exhibit 12: Singapore has started to see weaker general commerce demand as borrowing cost differential between China onshore and offshore US$ loan narrows
Exhibit 13: Onshore and Offshore RMB has been depreciating against USD CNY/ USD and CNH/USD
System general commerce loans growth vs. borrowing rate differential Borrowing Cost Diff (%) 4.0
0.161
0.159
(0.5)
Borrowing Cost Diff (1 Yr US$ Loan Rate in China - 1 Yr LIBOR)
Source: MAS, CEIC. Datastream.
Goldman Sachs Global Investment Research
CNY/USD
Apr-15
Jan-15
Oct-14
Jul-14
Apr-14
0.157
Jan-14
(1.0)
Oct-13
Oct-14
Feb-15
0.163
Jul-13
HK Trade Finance Loans (YoY Change)
Dec-14
Aug-14
Apr-14
Jun-14
Feb-14
Oct-13 Dec-13
Aug-13
Apr-13
Jun-13
Feb-13
Oct-12
Dec-12
Singapore System General Commerce YoY Loan Growth (DBU +ACU)
0.165
Apr-13
(20)
Apr-12
(10)
Jun-12
0.0
Aug-12
0.5
0
Oct-11
10
Dec-11 Feb-12
1.0
Apr-11
20
Jun-11
1.5
Aug-11
2.0
30
Feb-11
40
Oct-10
2.5
Dec-10
3.0
50
Aug-10
60
Apr-10 Jun-10
3.5
Feb-10
70
CNY/USD CNH/USD 0.167
Jan-13
Loans YoY (%) 80
CNH/USD
Source: Bloomberg.
5
April 15, 2015
Singapore: Banks
Exhibit 14: DBS has the largest exposure to trade finance loans…
Exhibit 15: … likewise DBS’ China trade finance exposure is the highest among its peers
Singapore banks loan book composition by industry, 2014
Singapore banks exposure to China trade finance, 2014 China Trade Finance Loans (%)
Loan Book by Industry (%) 100 9
11
90 80
13
19
14
14.0
12 26
70
27
10
60
8
50 54 40
49
6 49
4.5
30
3.7
4 20 10
2
18
14
10
0 DBS Trade Finance*
Other Corporate
OCBC Mortgage
UOB Consumer ex Mortgage
Note: *Only DBS disclosed trade loans, UOB and OCBC numbers based on company data and GS estimates
Source: Company data, Goldman Sachs Global Investment Research.
0 DBS
OCBC
UOB
Note: Only DBS disclosed trade loans, UOB and OCBC numbers based on company data and GS estimates
Source: Company data, Goldman Sachs Global Investment Research.
Exhibit 16: While weaker loan growth does not pose substantial risk to 2015E earnings, the excess liquidity from lower trade finance might be invested in lower yielding market securities thus offsetting margin expansion Singapore banks 2015E EPS sensitivity to change in loan growth
2015E EPS Sensitivity 1% Change in Loan Growth DBS OCBC UOB Change in EPS % 0.36 0.38 0.45 Source: Goldman Sachs Global Investment Research.
Goldman Sachs Global Investment Research
6
April 15, 2015
Singapore: Banks
DBS (CL-Buy): Reports April 27 before market opens Exhibit 17: We forecast core net profit of S$1,102mn for 1Q15E, +7% yoy DBS financial summary, 1Q2014-1Q2015E Income statement (S$mn)
Net Interest Income Fee & Commission Other Non-Interest Income Non-Interest Income Operating Income Operating Expenses Pre-Prov Op Profit (PPOP) Loan Loss Provisions Pre-tax Profit Net Profit Core Net Profit EPS (S$) Memo: Gross Loans (S$mn) NIM (%) Cost-to-income (%) Loan loss provisions (bp, annualized) NPL ratio (%) Loan Loss Coverage Loan-to-Deposits Core Tier 1 Core ROA Core ROE
1Q14
2Q14
3Q14
4Q14
1Q15E
1,488 510 453 963 2,451 (1,041) 1,410 (149) 1,470 1,231 1,033 0.42
1,557 503 253 756 2,313 (1,054) 1,259 (116) 1,182 969 936 0.38
1,602 555 357 912 2,514 (1,109) 1,405 (170) 1,234 1,008 1,008 0.40
1,674 459 207 666 2,340 (1,126) 1,214 (203) 1,012 838 838 0.33
1,712 519 415 934 2,646 (1,141) 1,505 (182) 1,338 1,102 1,102 0.44
256,744 1.66 42.5 23 1.0 134.1 85.2 13.1 1.00 11.9
260,758 1.67 45.6 18 0.9 146.9 87.1 13.5 0.89 10.5
265,204 1.68 44.1 26 0.9 145.3 87.0 13.4 0.96 11.1
279,154 1.71 48.1 30 0.9 147.4 88.0 13.1 0.77 9.0
281,963 1.71 43.1 26 0.9 149.7 87.0 13.1 0.99 11.7
YoY % QoQ %
15 2 (8) (3) 8 10 7 22 (9) (10) 7 5
10 5bp 0.6 3bp -15bp
2 13 100 40 13 1 24 (10) 32 32 32 32
1 0bp (5.0) -4bp 1bp
Source: Company data, Goldman Sachs Global Investment Research.
GSe 1Q net profit of S$1,102mn (Bloomberg consensus S$ 1,059mn) For 1Q15E results we bake into our forecast: 1)
Net Interest income to grow by 2% qoq/15% yoy given loan growth of 1% qoq/ 10% yoy within which we expect US$ loan growth to be lackluster due to declining trade finance loans as demand, especially from China trade finance, declines given the interest rate differential between borrowing onshore and offshore for the Chinese corporates weakens.
2)
We forecast NIMs to remain flat at 1.71% despite the pick-up in margins from the Singapore loan portfolio from rising SIBOR and SOR. This is likely to be offset by weaker China NIMs as well as pressure from declining trade loan book, with excess liquidity likely to be invested into money market securities which are lower yielding.
3)
Non-interest income up strongly qoq, 40% qoq/-3% yoy on the back of robust fee income. Wealth management is expected to see continued growth momentum and we anticipate recovery in DBS’ trading income from seasonally weak 4Q. DBS’ IBD fees are likely to remain healthy, given existing deal flow in the pipeline.
4)
Credit cost to decline to 26bps vs 30bps in 4Q, with asset quality likely to remain stable with flat NPL qoq at 0.9%.
Goldman Sachs Global Investment Research
7
April 15, 2015
Singapore: Banks
OCBC (Neutral): Reports April 30 before market opens Exhibit 18: We forecast core net profit of S$899mn for 1Q15E, flat yoy OCBC financial summary, 1Q2014-1Q2015E Income statement (S$mn)
Net Interest Income Fee & Commission Insurance Income Other Non-Interest Income Non-Interest Income Operating Income Operating Expenses Pre-Prov Op Profit (PPOP) Loan Loss Provisions Pre-tax Profit Net Profit Core Net Profit EPS (S$) Memo: Gross Loans (S$mn) NIM (%) Cost-to-income (%) Loan loss provisions (bp, annualized) NPL ratio (%) Loan Loss Coverage Loan-to-Deposits Core ROA Core ROE
1Q14
2Q14
3Q14
4Q14
1Q15E
1,087 353 223 224 800 1,887 (706) 1,181 (40) 1,143 899 899 0.25
1,126 353 259 238 850 1,976 (760) 1,216 (78) 1,154 921 921 0.26
1,246 406 215 180 801 2,047 (870) 1,177 (97) 1,471 1,232 841 0.21
1,277 383 232 147 762 2,039 (922) 1,117 (144) 995 791 791 0.19
1,316 398 234 180 812 2,128 (916) 1,211 (114) 1,153 899 899 0.22
175,245 1.70 37.4 9 0.7 148.4 87.9 1.04 14.6
177,415 1.70 38.5 18 0.7 153.2 88.1 1.05 14.5
204,854 1.68 42.5 20 0.7 157.5 86.4 0.89 12.3
209,822 1.67 45.2 28 0.6 174.3 85.5 0.78 10.7
212,333 1.69 43.1 22 0.6 175.7 85.0 0.88 11.7
YoY % QoQ %
21 13 5 (20) 2 13 30 3 184 1 0 0 (11)
21 -1bp 5.7 12bp -6bp
3 4 1 22 7 4 (1) 8 (21) 16 14 14 14
1 2bp (2.1) -6bp 1bp
Source: Company data, Goldman Sachs Global Investment Research.
GSe 1Q net profit of S$899mn (Bloomberg consensus S$884mn) For 1Q15E results we bake into our forecast: 1)
Net interest income growth of 3% qoq/21% yoy. Incorporating Wing Hang in 3Q14, we forecast loan growth of 1% qoq/21% yoy. NIMs to see slight pickup at 1.69%, benefiting from the rising Singapore short-end rates. However, this is likely to be offset by pressure from its declining trade loan book, with excess liquidity likely to be invested into money market securities, which are lower yielding.
2)
Healthy non-interest income, 7% qoq/2% yoy within which we forecast fee income to grow by 4% qoq/13% yoy and insurance income from Great Eastern likely to be flattish as well.
3)
Credit costs to decline to 22bps from 4Q’s 28bps as we see stable asset quality for OCBC, with its NPL ratio to remain at the 4Q level of 0.6%.
Goldman Sachs Global Investment Research
8
April 15, 2015
Singapore: Banks
UOB (Neutral): Reports April 30 before market opens Exhibit 19: We forecast core net profit of S$810mn for 1Q15E, +3% yoy UOB financial summary, 1Q2014-1Q2015E
Income statement (S$mn)
Net Interest Income Fee & Commission Other Non-Interest Income Non-Interest Income Operating Income Operating Expenses Pre-Prov Op Profit (PPOP) Loan Loss Provisions Pre-tax Profit Net Profit Core Net Profit FullyDilutedCoreEPS (S$) Memo: Gross Loans (S$mn) NIM (%) Cost-to-income (%) Loan loss provisions (bp, annualized) NPL ratio (%) Loan Loss Coverage Loan-to-Deposits Core Tier 1 Core ROA Core ROE
1Q14
2Q14
3Q14
4Q14
1Q15
1,110 414 228 642 1,752 (755) 997 (122) 882 788 788 0.48
1,124 410 350 760 1,884 (787) 1,097 (152) 974 808 718 0.44
1,155 475 341 816 1,971 (800) 1,171 (146) 1,046 866 866 0.53
1,168 450 232 682 1,850 (805) 1,045 (152) 922 786 786 0.47
1,215 456 244 700 1,914 (822) 1,093 (161) 969 810 810 0.48
188,597 1.73 43.1 26 1.1 160.2 87.1 14.0 1.05 12.3
193,140 1.71 41.8 32 1.2 149.2 89.4 13.9 0.94 10.9
195,943 1.71 40.6 30 1.2 146.8 87.3 14.0 1.12 12.8
199,343 1.69 43.5 31 1.2 145.9 85.3 13.9 1.00 11.4
201,287 1.74 42.9 32 1 145.6 85.2 14.2 1.01 11.2
YoY % QoQ %
9 10 7 9 9 9 10 32 10 3 3 1
7 1bp (0.2) 6bp 10bp
4 1 5 3 3 2 5 6 5 3 3 2
1 5bp (0.6) 1bp 2bp
Source: Company data, Goldman Sachs Global Investment Research.
GSe 1Q earnings S$810mn (Bloomberg consensus S$783mn) For 1Q15E results we bake into our forecast: 1)
Loan growth of 1.0% qoq in 1Q15, down from 4Q’s 1.7% qoq as we anticipate continued growth from corporate loans to be offset by sluggish retail credit growth which faces downward pressure from weak mortgage growth. For the full year, we forecast loan growth to reach 5.5%, in line with UOB’s loan growth guidance of midsingle digit.
2)
NIMs expansion by 5bps to 1.74% vs. 4Q’s 1.69% as we anticipate UOB will start to benefit from the rising Singapore short-end rates. However, UOB has commented on the possibility of increased competition on the deposit front, which might offset some of the positives from rising rates in subsequent quarters. Given UOB’s small China trade finance book, we do not anticipate similar pressures on its NIMs like DBS/ OCBC.
3)
Flattish Fee income growth of merely 1.3% qoq as we anticipate some pick up in trading activity, with fee income from investment banking remaining lackluster.
4)
Stable credit costs at 32bps vs. 4Q’s 31bps as we forecast asset quality to remain benign for the Singapore portfolio. UOB has expressed no concern on its overseas portfolio despite the sluggish macro environment in Thailand.
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Singapore banks estimates and target price changes We adjust our 2015-17E earnings forecasts by -0.8% to +1.3% to factor in stronger NIM expansion from rising Singapore short-end rates as well as slightly lower credit costs given still robust asset quality. On the back of our earnings changes, we raise our price targets by up to 2.7%. Our 12month target prices are based on the residual income model (RIM) methodology, which values stocks by adding the book value (adjusted for NPLs) of the company to the present value of residual income (based on ROE vs. cost of equity) over a 10-year forecast period, and the present value of a terminal value (based on long-term asset growth and ROE assumptions). Exhibit 20: We make minor changes to our 2015-17E EPS GS new vs previous estimates, Bloomberg consensus (S$)
Company
Ticker
DBS DBSM.SI UOB UOBH.SI OCBC OCBC.SI Sector Avg
New EPS estimates 2015E 1.77 2.05 0.94 1.59
2016E 2.17 2.32 1.04 1.84
Old EPS estimates
2017E 2.67 2.65 1.15 2.16
2015E 1.76 2.03 0.94 1.58
2016E 2.15 2.31 1.04 1.84
Earnings change
2017E 2.64 2.65 1.16 2.15
2015E 0.7% 1.2% -0.4% 0.5%
2016E 0.8% 0.5% -0.8% 0.2%
2017E 1.3% 0.0% -0.7% 0.2%
Consensus EPS estimates 2015E 1.72 2.04 0.96 1.57
2016E 1.93 2.25 1.05 1.74
2017E 2.16 2.48 1.12 1.92
GS vs Consensus 2015E 2.8% 0.5% -1.5% 0.6%
2016E 12.6% 3.6% -0.9% 5.1%
2017E 24.0% 7.0% 2.9% 11.3%
Source: Bloomberg, Goldman Sachs Global Investment Research.
Exhibit 21: We raise our target prices by up to 2.7% Target price changes Company Singapore DBS Group Holdings United Overseas Bank Oversea-Chinese Banking Corp. * On Conviction List
Rating
Current
New
Price
Buy* Neutral Neutral
20.40 23.32 10.70
12-m Target Price Change New Old (%) 22.90 25.10 11.10
22.30 25.00 11.10
2.7 0.4 -
Potential Up/down side
Risks
12.3% (-) NPL risk from its Greater China portfolio 7.6% (+) Stronger topline growth from its ASEAN subsidiaries; (-) NIM headwinds from funding pressures 3.7% (+) Better than expected NIM from rising rates; (-) Higher NPL risk and credit cost
Source: Goldman Sachs Global Investment Research.
Exhibit 22: Our residual income model (RIM) methodology assumptions
DBS OCBC UOB
Cost of Equity (%) 9.0 9.0 9.0
Projected ROA (%) (2015 - 2025 Average) 1.2 1.0 1.1
Source: Goldman Sachs Global Investment Research.
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Disclosure Appendix Reg AC I, Melissa Kuang, CFA, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Goldman Sachs' Global Investment Research division.
Investment Profile The Goldman Sachs Investment Profile provides investment context for a security by comparing key attributes of that security to its peer group and market. The four key attributes depicted are: growth, returns, multiple and volatility. Growth, returns and multiple are indexed based on composites of several methodologies to determine the stocks percentile ranking within the region's coverage universe. The precise calculation of each metric may vary depending on the fiscal year, industry and region but the standard approach is as follows: Growth is a composite of next year's estimate over current year's estimate, e.g. EPS, EBITDA, Revenue. Return is a year one prospective aggregate of various return on capital measures, e.g. CROCI, ROACE, and ROE. Multiple is a composite of one-year forward valuation ratios, e.g. P/E, dividend yield, EV/FCF, EV/EBITDA, EV/DACF, Price/Book. Volatility is measured as trailing twelve-month volatility adjusted for dividends.
Quantum Quantum is Goldman Sachs' proprietary database providing access to detailed financial statement histories, forecasts and ratios. It can be used for in-depth analysis of a single company, or to make comparisons between companies in different sectors and markets.
GS SUSTAIN GS SUSTAIN is a global investment strategy aimed at long-term, long-only performance with a low turnover of ideas. The GS SUSTAIN focus list includes leaders our analysis shows to be well positioned to deliver long term outperformance through sustained competitive advantage and superior returns on capital relative to their global industry peers. Leaders are identified based on quantifiable analysis of three aspects of corporate performance: cash return on cash invested, industry positioning and management quality (the effectiveness of companies' management of the environmental, social and governance issues facing their industry).
Disclosures Coverage group(s) of stocks by primary analyst(s) Melissa Kuang, CFA: Asia Pacific Financials. Ben Koo: Asia Pacific Financials. Asia Pacific Financials: AIA Group, AMMB Holdings, Axis Bank, Bajaj Finance, Bajaj Finserv, Bangkok Bank, Bangkok Bank (Foreign), Bank Central Asia, Bank Danamon, Bank Mandiri, Bank Negara Indonesia, Bank of Baroda, Bank of East Asia, Bank Rakyat Indonesia, Bank Tabungan Negara, Bank Tabungan Pensiunan Nasional, BDO Unibank, BOC Hong Kong (Holdings), BS Financial Group, Cathay Financial, Chailease Holdings, Chang Hwa Commercial Bank, China Development Financial, CIMB Group Holdings, CTBC Financial Holdings, Dah Sing Banking Group, Dah Sing Financial Holdings, DBS Group Holdings, DGB Financial Group, E.Sun Financial Holding, Federal Bank, First Financial Holdings, Fubon Financial Holdings, Hana Financial Group, Hang Seng Bank, HDFC Bank, Hong Leong Bank, Housing Development Finance Corp., HSBC Holdings, ICICI Bank, IDFC Ltd., IndusInd Bank, Industrial Bank of Korea, ING Vysya Bank Ltd., Kasikornbank, Kasikornbank (Foreign), KB Financial Group, Kotak Mahindra Bank, Krung Thai Bank, Krung Thai Bank (Foreign), L&T Finance Holding, LIC Housing Finance, Mahindra & Mahindra Financial Svcs., Malayan Banking Bhd, Mega Financial Holdings, Metropolitan Bank and Trust Co, Oriental Bank of Commerce, Oversea-Chinese Banking Corp., Power Finance Corp., Public Bank Bhd, Punjab National Bank, RHB Capital, Shin Kong Financial Holdings, Shinhan Financial Group, Shriram City Union Finance Ltd., Shriram Transport Finance, Siam Commercial Bank, Siam Commercial Bank (Foreign), SinoPac Holdings, Standard Chartered Bank, State Bank of India, Taishin Financial Holdings, TMB Bank Public Co., TMB Bank Public Co. (Foreign), United Overseas Bank, Woori Bank, Yes Bank, Yuanta FHC.
Company-specific regulatory disclosures The following disclosures relate to relationships between The Goldman Sachs Group, Inc. (with its affiliates, "Goldman Sachs") and companies covered by the Global Investment Research Division of Goldman Sachs and referred to in this research. Goldman Sachs has received compensation for investment banking services in the past 12 months: DBS Group Holdings (S$20.74), Oversea-Chinese Banking Corp. (S$10.80) and United Overseas Bank (S$23.68) Goldman Sachs expects to receive or intends to seek compensation for investment banking services in the next 3 months: DBS Group Holdings (S$20.74), Oversea-Chinese Banking Corp. (S$10.80) and United Overseas Bank (S$23.68) Goldman Sachs has received compensation for non-investment banking services during the past 12 months: DBS Group Holdings (S$20.74), Oversea-Chinese Banking Corp. (S$10.80) and United Overseas Bank (S$23.68) Goldman Sachs had an investment banking services client relationship during the past 12 months with: DBS Group Holdings (S$20.74), OverseaChinese Banking Corp. (S$10.80) and United Overseas Bank (S$23.68) Goldman Sachs had a non-investment banking securities-related services client relationship during the past 12 months with: DBS Group Holdings (S$20.74), Oversea-Chinese Banking Corp. (S$10.80) and United Overseas Bank (S$23.68) Goldman Sachs had a non-securities services client relationship during the past 12 months with: DBS Group Holdings (S$20.74), Oversea-Chinese Banking Corp. (S$10.80) and United Overseas Bank (S$23.68) Goldman Sachs has managed or co-managed a public or Rule 144A offering in the past 12 months: DBS Group Holdings (S$20.74)
Distribution of ratings/investment banking relationships Goldman Sachs Investment Research global coverage universe Rating Distribution
Buy
Hold
Goldman Sachs Global Investment Research
Investment Banking Relationships
Sell
Buy
Hold
Sell 11
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Global 32% 54% 14% 46% 37% 32% As of April 1, 2015, Goldman Sachs Global Investment Research had investment ratings on 3,356 equity securities. Goldman Sachs assigns stocks as Buys and Sells on various regional Investment Lists; stocks not so assigned are deemed Neutral. Such assignments equate to Buy, Hold and Sell for the purposes of the above disclosure required by NASD/NYSE rules. See 'Ratings, Coverage groups and views and related definitions' below.
Price target and rating history chart(s) DBS Group Holdings (DBSM.SI)
Stock Price Currency : Singapore Dollar
24.00
Goldman Sachs rating and stock price target history
18.96
17
20.00 18.00 16.5
19.3
22.7
19.1 19.7
21
17.3 22.3
16.00 14.00
19.5
19.4
17.2
12.00
12.00
3,400
11.00
3,200
10.00
3,000
9.00
2,800
8.00
3,600 10.9
10.68
9.8
3,400
10.19
3,200
9.41 10.29
11.2
11.1
11.06 10.77
3,000 2,800
10.87
18.7 7.00
B M J J A S O N D J F MA M J J A S O N D J F M A M J J A S O N D J F M 2012 2013 2014 2015
Source: Goldman Sachs Investment Research for ratings and price targets; FactSet closing prices as of 3/31/2015. Rating Covered by Melissa Kuang, CFA,
Stock Price
2,600 Index Price
10.00 Stock Price
3,600
Jan 6
N NR N M J J A S O N D J F MA M J J A S O N D J F M A M J J A S O N D J F M 2012 2013 2014 2015
Price target at removal
2,600
Source: Goldman Sachs Investment Research for ratings and price targets; FactSet closing prices as of 3/31/2015. Rating Covered by Melissa Kuang, CFA,
as of Aug 6, 2012
Price target
Aug 28
Index Price
16.8
22.00
Stock Price Currency : Singapore Dollar
Oversea-Chine se Bank ing Corp. (OCBC.SI)
Goldman Sachs rating and stock price target history
Price target
Not covered by current analyst
Price target at removal
FTSE Straits Times Index
as of Aug 6, 2012 Not covered by current analyst
FTSE Straits Times Index
The price targets show n should be considered in the context of all prior published Goldman Sachs research, w hich may or may not have included price targets, as w ell as developments relating to the company, its industry and f inancial markets.
Unite d Ove rs eas Bank (UOBH.SI)
The price targets show n should be considered in the context of all prior published Goldman Sachs research, w hich may or may not have included price targets, as w ell as developments relating to the company, its industry and f inancial markets.
Stock Price Currency : Singapore Dollar
Goldman Sachs rating and stock price target history 26.00
3,600 22.3 21.2
24.00 22.00
20
22.3 22.2
22.3 22.7
3,400
21
25
25 25.6
20.00
3,200 3,000
24.1 18.00
21.7
2,800 21.57 2,600
N M J J A S O N D J F MA M J J A S O N D J F M A M J J A S O N D J F M 2012 2013 2014 2015
Index Price
Stock Price
16.00
Source: Goldman Sachs Investment Research for ratings and price targets; FactSet closing prices as of 3/31/2015. Rating Covered by Melissa Kuang, CFA, Price target Price target at removal
as of Aug 6, 2012 Not covered by current analyst
FTSE Straits Times Index The price targets show n should be considered in the context of all prior published Goldman Sachs research, w hich may or may not have included price targets, as w ell as developments relating to the company, its industry and f inancial markets.
Regulatory disclosures Disclosures required by United States laws and regulations See company-specific regulatory disclosures above for any of the following disclosures required as to companies referred to in this report: manager or co-manager in a pending transaction; 1% or other ownership; compensation for certain services; types of client relationships; managed/comanaged public offerings in prior periods; directorships; for equity securities, market making and/or specialist role. Goldman Sachs usually makes a market in fixed income securities of issuers discussed in this report and usually deals as a principal in these securities. The following are additional required disclosures: Ownership and material conflicts of interest: Goldman Sachs policy prohibits its analysts, professionals reporting to analysts and members of their households from owning securities of any company in the analyst's area of coverage. Analyst compensation: Analysts are paid in part based on the profitability of Goldman Sachs, which includes investment banking revenues. Analyst as officer or director: Goldman Sachs policy prohibits its analysts, persons reporting to analysts or members of their households from serving as an officer, director, advisory board member or employee of any company in the analyst's area of coverage. Non-U.S. Analysts: Non-U.S. analysts may not be associated persons of Goldman, Sachs & Co. and therefore may not be subject to NASD Rule 2711/NYSE Rules 472 restrictions on communications with subject company, public appearances and trading securities held by the analysts. Distribution of ratings: See the distribution of ratings disclosure above. Price chart: See the price chart, with changes of ratings and price targets in prior periods, above, or, if electronic format or if with respect to multiple companies which are the subject of this report, on the Goldman Sachs website at http://www.gs.com/research/hedge.html.
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may be obtained from Goldman Sachs (Asia) L.L.C., Seoul Branch. New Zealand: Goldman Sachs New Zealand Limited and its affiliates are neither "registered banks" nor "deposit takers" (as defined in the Reserve Bank of New Zealand Act 1989) in New Zealand. This research, and any access to it, is intended for "wholesale clients" (as defined in the Financial Advisers Act 2008) unless otherwise agreed by Goldman Sachs. Russia: Research reports distributed in the Russian Federation are not advertising as defined in the Russian legislation, but are information and analysis not having product promotion as their main purpose and do not provide appraisal within the meaning of the Russian legislation on appraisal activity. Singapore: Further information on the covered companies referred to in this research may be obtained from Goldman Sachs (Singapore) Pte. (Company Number: 198602165W). Taiwan: This material is for reference only and must not be reprinted without permission. Investors should carefully consider their own investment risk. Investment results are the responsibility of the individual investor. United Kingdom: Persons who would be categorized as retail clients in the United Kingdom, as such term is defined in the rules of the Financial Conduct Authority, should read this research in conjunction with prior Goldman Sachs research on the covered companies referred to herein and should refer to the risk warnings that have been sent to them by Goldman Sachs International. A copy of these risks warnings, and a glossary of certain financial terms used in this report, are available from Goldman Sachs International on request. European Union: Disclosure information in relation to Article 4 (1) (d) and Article 6 (2) of the European Commission Directive 2003/126/EC is available at http://www.gs.com/disclosures/europeanpolicy.html which states the European Policy for Managing Conflicts of Interest in Connection with Investment Research. Japan: Goldman Sachs Japan Co., Ltd. is a Financial Instrument Dealer registered with the Kanto Financial Bureau under registration number Kinsho 69, and a member of Japan Securities Dealers Association, Financial Futures Association of Japan and Type II Financial Instruments Firms Association. Sales and purchase of equities are subject to commission pre-determined with clients plus consumption tax. See company-specific disclosures as to any applicable disclosures required by Japanese stock exchanges, the Japanese Securities Dealers Association or the Japanese Securities Finance Company.
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