Disclosures & Disclaimer
This report must be read with the disclosures and the analyst certifications in
the Disclosure appendix, and with the Disclaimer, which forms part of it.
MCI (P) 126/02/2017 MCI (P) 069/06/2017
Issuer of report: The Hongkong and Shanghai
Banking Corporation Limited, Singapore Branch
View HSBC Global Research at:
https://www.research.hsbc
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strength…
macro data
sector pick
Fuelled by hope again. Despite an unexciting 2Q17 and more cautious guidance from
DBS during its last analyst briefing, stocks have rebounded from recent lows, rising 5-8%
since mid-September thanks again to hopes of improving revenue prospects and
sustained asset quality resilience (Singapore banks: Hopes are deflating, 9 August 2017).
It is hard to fault the market’s optimism, given the positive macro data we have seen (Fig
9 and 11). Still, there are three points worth considering:
1. It may take time for credit growth to pick up meaningfully. Sector DBU loan
growth rose 5% y-o-y and 3% YTD in August 2017. In short, the strong 6.3% q-o-q
saar 3Q17 GDP growth has yet to filter through to credit growth (Fig 6).
2. Higher interest rates q-o-q but not for the year. 3-month SIBOR and SOR rose
0.13bp and 0.17bp since June, respectively. This may lead to higher NIM, but it may
take three months for assets to re-price. More importantly, the average 3-month
SIBOR YTD is just 4bp higher than the 2016 average, while the average 3-month
SOR YTD is 6bp lower than the 2016 average. In short, 2017 NIM may not be much
higher than 2016 levels (Fig 8).
3. Credit cost may not improve much. There is little evidence to suggest broad-
based asset quality weakness; however, conditions may not get better as NPLs are
near multi-year lows despite slipping since 2014 (Fig 12). The risk to future earnings
is more pronounced as provisioning reserves have fallen greatly since 2014 (Fig 13).
The adoption of FRS9 accounting standards in 2018 could lead to more uncertainty.
Stay tactically positive. Preferred pick is OCBC (Buy). OCBC will report 3Q17
results on 26 October followed by UOB (Hold) on 3 November and DBS (Hold) on 6
November. We expect 3Q17 to reflect modest credit growth, flat to marginal NIM
improvement, and stable credit cost. This should translate into 4-10% y-o-y EPS
growth (Fig 20). While this may not be exciting, we believe the market may interpret
“no bad news” as good news as it looks ahead to 2018 with hope that strong macro
data will translate into better top-line growth while asset quality risks are kept at bay.
At 11x 2018e PE and 1.1x December 2018e PB, the sector does not look expensive,
but we need to remember that these valuations already reflect marginal NIM
improvement and sustained credit cost resilience. Our top sector pick is OCBC (Buy).
23 October 2017
Kar Weng Loo*
Analyst
The Hongkong and Shanghai Banking Corporation Limited,
Singapore Branch
karwengloo@hsbc.sg
+65 6658 0621
Xiushi Cai*
Analyst
The Hongkong and Shanghai Banking Corporation Limited,
Singapore Branch
xiushicai@hsbc.sg
+65 6658 0617
* Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is
not registered/ qualified pursuant to FINRA regulations
Singapore banks
EQUITIES
FIG
Singapore A lacklustre 3Q17 Who cares
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EQUITIES ● FIG
23 October 2017Stock performance and valuations
Fig 1. SG banks: YTD performanceFig 2. SG banks: YTD performance
Source: Bloomberg, HSBC. Priced as at 19 October 2017.Source: Bloomberg, HSBC. Priced as at 19 October 2017.
Fig 3. SG bank sector: One-year forward
PB (x)
Fig 4. SG bank sector: One-year forward
PE (x)
Source: Bloomberg, HSBC. PB mean is based on data after 2009Source: Bloomberg, HSBC. PE mean is based on data after 2009
Fig 5. SG banks: Sector valuation table
Bank Stock
code (SP)
Rating Price
SGD
Target
price SGD
Upside Mkt cap
USDbn
Avg trdg
value USDm
PE (x) PB (x) ROE (%) Div yield
(%)
P/PPoP
(x)
2016-18e core
EPS CAGR (%)
17e 18e 17e 18e 17e 18e 17e 18e 17e 18e
DBS Group Holdings DBS Hold 21.70 23.15 6.7% 41 64 12 11 1.2 1.1 11.1 10.2 2.9 3.1 8.1 7.7 7
Oversea-Chinese Banking Corp OCBC Buy 11.44 13.90 21.5% 35 42 12 11 1.2 1.2 10.6 10.9 3.4 3.7 9.0 8.2 12
United Overseas Bank UOB Hold 24.33 25.40 4.4% 30 35 13 13 1.2 1.2 9.7 9.4 3.2 2.9 9.1 8.9 2
Sector avg12 11 1.2 1.1 10.5 10.2 3.1 3.3 8.6 8.1
Source: Bloomberg, HSBC estimates. Priced as at 19 October 2017.
28%
25%
19%
16%
10%
12%
14%
16%
18%
20%
22%
24%
26%
28%
30%
OCBCDBSUOBFSSTI
2017 YTD%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
Jan
-17
Fe
b-1Ma
r-1Ap
r-1Ma
y-1Jun
-17
Jul
-17
Au
g-1Se
p-1Oc
t-1DBSUOBOCBC
0.8x
0.9x
1.0x
1.1x
1.2x
1.3x
1.4x
1.5x
Jan
-10
Jan
-11
Jan
-12
Jan
-13
Jan
-14
Jan
-15
Jan
-16
Jan
-17
1-yr fwd PBV (x)
+1SD: 1.3x
Avg: 1.2x
-1SD: 1.0x
7x
8x
9x
10x
11x
12x
13x
14x
De
c-0De
c-1De
c-1De
c-1De
c-1De
c-1De
c-1De
c-11-yr fwd PE (x)
+1SD: 12x
Avg: 11x
-1SD: 10xEQUITIES ● FIG
23 October 2017
Sectoral and macro trends
Fig 6: Singapore bank system: DBU loan
and deposit growth
Fig 7: Singapore bank system: DBU loan-
to-deposit ratio
Source: MAS, HSBCSource: MAS, HSBC
Fig 8. 3-month SIBOR and 3-month SORFig 9. Singapore: Inflation
Source: Bloomberg, HSBCSource: Bloomberg, HSBC
Fig 10. SGD NEERFig 11. Singapore: Real GDP growth
Source: Bloomberg, HSBCSource: Bloomberg, HSBC
-5%
0%
5%
10%
15%
20%
25%
30%
35%
Jan
-05
Jan
-06
Jan
-07
Jan
-08
Jan
-09
Jan
-10
Jan
-11
Jan
-12
Jan
-13
Jan
-14
Jan
-15
Jan
-16
Jan
-17
Loan growth YoY%
Deposit Growth YoY%
65%
75%
85%
95%
105%
115%
De
c-9De
c-9De
c-9De
c-9De
c-0De
c-0De
c-0De
c-0De
c-0De
c-1De
c-1De
c-1De
c-10.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
De
c-1Ma
r-1Jun
-16
Se
p-1De
c-1Ma
r-1Jun
-17
Se
p-13-mth SIBOR3-mth SOR%
-2
-11357
Jan
-11
Jul
-11
Jan
-12
Jul
-12
Jan
-13
Jul
-13
Jan
-14
Jul
-14
Jan
-15
Jul
-15
Jan
-16
Jul
-16
Jan
-17
Jul
-17
CPI YoY%%
100
105
110
115
120
125
130
Jan
-10
Jul
-10
Jan
-11
Jul
-11
Jan
-12
Jul
-12
Jan
-13
Jul
-13
Jan
-14
Jul
-14
Jan
-15
Jul
-15
Jan
-16
Jul
-16
S$ NEERTopMiddleBottom
Index
1999=10013579Jan
-11
Jul
-11
Jan
-12
Jul
-12
Jan
-13
Jul
-13
Jan
-14
Jul
-14
Jan
-15
Jul
-15
Jan
-16
Jul
-16
Jan
-17
Jul
-17
Real GDP %YOY
%
EQUITIES ● FIG
23 October 2017Fig 12. SG banks: Gross NPL ratios are
still near multi-year lows
Fig 13. SG banks: Provision reserve levels
have been depleted in the past two years
Source: Companies, HSBCSource: Companies, HSBC
0%
2%
4%
6%
8%
10%
4Q
04
4Q
05
4Q
06
4Q
07
4Q
08
4Q
09
4Q4Q4Q4Q4Q4Q4QGross NPL ratio %
DBSUOBOCBC
60%
80%
100%
120%
140%
160%
180%
4Q
04
4Q
05
4Q
06
4Q
07
4Q
08
4Q
09
4Q4Q4Q4Q4Q4Q4QProvision reserves / NPA
DBSUOBOCBC
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