Singapore Banks Earnings

The three local banks, DBS, OCBC & UOB comprise the lion’s share of the Straits Times Index (STI), so it is little surprise that their earnings announcements are closely watched.

Singapore bank Q3 earnings – Macro conditions reigns

Company Earnings Report Date
OCBC 26 October 2017 (Bef mkt)
UOB 3 November 2017 
DBS 6 November 2017 (Bef mkt)

 

The trio of Singapore’s biggest banks had led the local Straits Times Index (STI) in terms of year-to-date (YTD) performances, although the pace of the rally had certainly slowed in Q3. Post earnings guidance from DBS lurked on the cautious end, signalling growth while highlighting concerns over asset quality. This had weighed upon the performance of local bank shares in the third quarter, although reflation expectations lately aided regional bank shares on another leg up.

While growth is expected to sustain, the sentiment had not been strong for an outperformance in the upcoming Q3 earnings release, bringing the pace for the current rally into question.

 

Singapore banks results and expectations

 

DBS

OCBC

UOB

Q2 Revenue (billion)

3.019

2.372

2.185

Q3 Revenue estimate (billion)

2.993

(+0.6% YoY)

2.316

(+7.6% YoY)

2.178

(+6.7% YoY)

Q2 EPS Adj.

0.45

0.25

0.46

Q3 EPS Adj. estimate

0.43

(+5.1% YoY)

0.24

(+10.8% YoY)

0.50

(+16.9% YoY)

Q2 Net income Adj. (billion)

1.140

1.061

0.762

Q3 Net income Adj. estimate (billion)

1.121

(+8.1% YoY)

0.974

(+8.1% YoY)

0.809

(+14.9% YoY)


Source: Bloomberg

A scan of the latest consensus estimates finds that the expectation for growth continue to cut across all three local banks for Q3. Zooming into the revenue engines, one would find that the key component, loan, appears to be keeping its growth momentum. Bank loans based on the latest release have been seen at 5.9% and 5.1% growth respectively for July and August. With the resilient Q3 economic growth conditions and the upturn for the housing market, this may be the key consolation for the upcoming release. Concurrently, net interest margins (NIMs), the bank’s loan spreads, may also find neutral to mild upsides, gradually phasing in the marginal increment in the local SIBOR and SOR rates.

The flipside to this positive outlook remains with asset quality as concerns over non-performing assets sustained post Q2 earnings release. The root of these apprehension sits once again with the offshore and marine sector, eerily reminding us of last Q3’s situation. While a repeat of the drastic turn in non-performing loans is unlikely, credit costs may remain a drag on profits. Of the lot, one would be reminded that DBS remains the bank with the highest exposure to the beleaguered sector, making a foray there one to be done with caution.

With the mix, we could see the intensity of Q3 earnings impact being a mild one for share prices, so long we are not met with disappointments. A better guide for local bank shares may remain with the broad macro conditions. Recent anticipation for US tax overhaul and the updates to the Federal Reserve board have been and may remain the inspiration for local bank shares, while resilient economic conditions provides support. Look instead to these factors post earnings.  

 

Source: Bloomberg (as of 24 October 2017) 

Technical Analysis

From a technical perspective OCBC Ltd. remains a favoured pick as the remaining duo finds resistances capping the rally. Watch for further gains with the $11.49 horizontal resistance turning into a support for prices. 

OCBC

Earnings Release: 26 Oct 2017
Market Cap: S$48.01 billion1

Registered in 1932, Oversea-Chinese Banking Corporation Limited (OCBC) is the oldest bank in Singapore, after a merger of three Hokkien lenders. It counts OCBC Securities and Great Eastern Holding Ltd among its subsidiaries. The bank has a presence in 18 countries and territories, and is the second-largest financial institution in Southeast Asia (SEA) by assets.

Live OCBC prices

UOB

Earnings Release: 3 Nov 2017
Market Cap: S$40.32 billion1

United Overseas Bank (UOB) was set up in 1935 and is now the third-largest bank by assets in Southeast Asia. Having started out as United Chinese Bank, UOB was renamed in 1965 and it now has over 500 offices across 19 countries and territories. The bank is increasing its yuan business, with the asset management arm securing a RQFII licence in June 2015.

Live UOB prices

DBS

Earnings Release: 6 Nov 2017
Market Cap: S$56.01 billion1

Development Bank of Singapore (DBS) is the largest bank in Singapore by assets and was initially established by the Singapore government to assume industrial financing activities. DBS acquired the Asian private banking business of Societe Generale in 2014, and was the only ASEAN bank to be ranked among the world's top 50 private banking brands in 2015.

Live DBS prices

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1 Source: Bloomberg (October 2017)

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