Maybank KimEng upgrades Singapore banks, tips UOB top pick

UOB and OCBC Bank ATMs in SingaporeUOB and OCBC Bank ATMs in Singapore.

Maybank KimEng upgraded Singapore’s banking sector to Positive from Neutral.

”Stronger loan growth, NIM improvement from higher rates, higher non-interest income and lower provisions are positives for Singapore banks,” it said in a note on Tuesday.

The brokerage said it was now valuing the banks at 1.4-1.6 times 2018 price to book value, up from 1.3-1.6 times previously.

It tipped its “pecking order” as UOB, OCBC and DBS.

Upgrading OCBC

OCBC’s earnings momentum is likely to be sustained in an upcycle, the brokerage said, raising its 2018-20 net profit forecasts by 4-12 percent, citing higher loan growth and non-interest income assumptions.

It expected wealth management would remain a key growth driver for OCBC after income from the segment was 34 percent of total 2017 income. It raised its 2018-20 forecasts for non-interest income by 6-14 percent, citing higher wealth management fees and the contribution from insurance segment Great Eastern.

The brokerage forecasts a three-year compound annual growth rate (CAGR) of around 22 percent for Great Eastern’s life profits for the bank.

It upgraded OCBC to Buy from Hold and raised its target price to S$14.83 from S$13.50.


Maybank KimEng said it expected UOB could generate “robust earnings in a cyclical upturn.” 

It raised its 2018-20 net profit forecasts by 2-5 percent on higher loan growth and non-interest income assumptions. It increased its target price to S$31.08 from S$29.33, keeping a Buy call.

“A rebound in Singapore’s property market can benefit UOB as 50 percent of its total loan book is related to housing and building and construction loans, vs 42 percent for peers,” it said. “Also, we remain positive on UOB’s capacity for further wealth management fee growth. We think UOB’s wealth franchise is underappreciated.”

It tipped UOB as its top pick on a disciplined pricing strategy.


The brokerage said it “liked” DBS, but that the positives were priced in.

It said it valued the bank at 1.6 times 2018 price-to-book-value, above its historical mean of 1.2 times.

”We believe a higher multiple for DBS is warranted as we see double-digit income growth and cost efficiency gains vis-a-vis peers,”it said. “However, we think the positives have been priced in for now. Its share price has been the best performing over the past 12 months.”

It kept a Hold call on DBS, with a S$29.66 target.