Nomura: DBS’ strong results bode well for OCBC and UOB

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

DBS results offer a good read across for Singapore peers UOB and OCBC, but the net interest margin (NIM) and credit cost reduction may not be as significant, Nomura said in a note on Wednesday.

On Monday, DBS reported first quarter net profit surged 26 percent to a record S$1.52 billion. Its net interest income rose 16 percent on-year to S$2.13 billion on higher loan volumes and its net interest margin increased by 9 basis points to 1.83 percent on higher interest rates, the bank said.

“While UOB’s NIM might not expand as quickly as DBS, credit cost could decline faster than expected,” Nomura said. While it was forecasting first quarter net profit of S$994 million for UOB, it added that it could cross the S$1.0 billion quarterly earnings mark for the first time, if credit costs were to decline by more than 25 percent on-year.

It said it expected UOB’s first-quarter NIM would rise to 1.83 percent, up only 2 basis points, less than the DBS rise.

“DBS’ credit cost came in at 20 basis points (5 basis points below our estimate), while we estimate UOB’s credit cost to be 30 basis points. This should help UOB outperform,” Nomura said.

UOB’s results are due before the market open on Thursday.

Nomura noted that all three Singapore banks saw their valuations increase after DBS’ results on Monday, but UOB’s potential upside was still attractive at around 15 percent, including the dividend yield. It rates the stock at Buy, with a target price of S$33.90.

DBS’ valuation was “coming close to our full valuation,” Nomura said, but added it could continue rising amid market momentum. It rates DBS at Buy with a target price of S$32.10.

Nomura rates OCBC at Neutral, saying the share is “fairly valued.” It has a target price of S$14.10.

Shares of DBS were up 1.04 percent at S$31.16, UOB added 0.36 to S$30.25 and OCBC gained 1.30 percent to S$13.98 by 9:03 A.M. SGT on Wednesday.