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 Q1 earnings – sentiment check

Company Earnings Report Date
DBS 30 April 2018 (Bef market)
UOB 3 May 2018 (Bef market)
OCBC 7 May 2018 (Bef market)

Strong expectations are baked in for Singapore’s first quarter bank earnings from the trio of big banks here in Singapore. DBS Group Holdings Ltd., the outperformer from the last earnings season, is expected to lead in releasing the results on 30 April, certainly one of the highlights for the local market.

While there appears to be little contention that we would likely find good performances from the first quarter results, the question lies with how the price reactions would follow.

Singapore banks results and expectations

 

DBS

OCBC

UOB

Q4 Revenue (billion)

3.055

2.629

2.307

Q1 Revenue estimate (billion)

3.287

(+13.9% YoY)

2.473

(+10.0% YoY)

2.326

(+9.6% YoY)

Q4 EPS Adj.

0.478

0.241

0.499

Q1 EPS Adj. estimate

0.559

(+17.4% YoY)

0.258

(+12.0% YoY)

0.569

(+17.81% YoY)

Q4 Net income (billion)

1.218

1.033

0.855

Q1 Net income estimate (billion)

1.428

(+18.0% YoY)

1.094

(+12.4% YoY)

0.960

(+18.9% YoY)

Source: Reuters

A good report due?

Assessing the backdrop, a rising interest rate environment, improvement in asset quality and broad growth conditions had all been listed as factors which are likely to contribute to rosy Q1 report cards for the local banks. Indeed, a scan of the macro environment points to sustained economic growth. Q1 GDP arrived meeting the market’s expectation in year-on-year (YoY) terms, advancing to 4.3% YoY from 3.1% previously. This was as loan growth, synonymous to the economic growth trajectory, struck a 3-year high at 8.5% YoY in February, boding well for banks’ bottom-line.

Simultaneously, the 3-month Singapore Interbank Offer Rate (SIBOR) trekked higher to 1.5% levels in Q1 as the US central bank remained on their rate hike trajectory, a phenomenon that should see banks’ pertinent net interest margins (NIM) improving. Analysts have also broadly pointed out the expected turn in asset quality after chugging out of a good proportion of the non-performing assets in the past year.

Measuring reactions

Being the first to release their results and with the strongest profit growth expected, DBS may be the best to capture movements in this upcoming earnings season. Watch for a retest of the January 25 high of $27.40 with immediate support at $26.15. Do note that any dip pass the 50% retracement level at $25.725 could see the uptrend giving up to a head-and-shoulder pattern for further downsides.

While political and geopolitical concerns did hit the market, the receding of which in recent sessions had certainly helped prices to regain its upward momentum in anticipation of the earnings releases. All three banks had also clocked substantial year-to-date gains, DBS Group Holdings Ltd. at the fore with an impressive 20.7% gain when last checked.

All things said, it is also worth considering the reactions with the delivery of the earnings. This is particularly given the lack of enthusiasm seen in the US following the update of impressive financial sector results. The KBW NASDAQ bank index had actually fallen sharply on the day of JPMorgan Chase & Co. and Citibank’s updates though the geopolitical backdrop did play a part as well. For investors that have long basked in the warm glow of positive economic conditions, the focus shifts ahead to guidance with the outlook likely to be the key here in Asia as well. As such, it would be critical to assess the views from the senior management in this upcoming release.

Technical Analysis

As the first to release its Q1 results, DBS Group Holdings Ltd. may be the best to capture the reactions, though the impact will likely ripple across the local banking sector. Certainly, we have the macro picture, valuations and technical all showing positive signs but a sell-the-news phenomenon should still not be ruled out. The consolation for DBS may be the fact that its strong suite of digital strategy favours this local bank which could see bargain hunters swooping in. On the flipside, upsides could find limitation as prices close in on analysts’ 12-month price target towards $30.82, as surveyed by Reuters.

Prices broke past its February high this month, reflecting an apparent breakout for DBS in the current uptrend. Any retracement to mark this higher high could find support at the 23.6% Fibonacci retracement level of $28.83.

DBS

OCBC

Market Capitalisation: 57.68 billion

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

Market Capitalisation: 21.32 billion

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

Market Capitalisation: 76.74 billion

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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