Maybank KE: Singapore banks’ share buybacks signal value is emerging

OCBC, Citibank, DBS and UOB ATMs at Tang Plaza at Orchard Road in Singapore.OCBC, Citibank, DBS and UOB ATMs at Tang Plaza at Orchard Road in Singapore.

Singapore banks have increased their share buybacks even as their stocks have dropped around 12 percent since their April peaks, in a sign value is emerging in the sector, Maybank KimEng said in a note Friday.

“We believe that the banks buying on dips is an indicator of value emerging,” the note said.

So far this year, DBS has bought back around 25 percent of the number of shares purchased in 2018, when historically, it was more active in the latter half of the year, while OCBC has bought back around 60 percent of the volume it acquired last year, the note said.

In addition, Maybank KimEng said the sector was trading at a 17 percent discount to the 2019 price-to-earnings level of its Southeast Asian peers, even while offering some of the highest dividend yields in the region.

“We believe the sector will benefit from a flight to quality and defensiveness as macro conditions remain volatile,” the note said.

Singapore’s banks have strong balance sheets, even during periods of deep distress, Maybank KimEng said.

“Our scenario analysis suggests that non-performing loans would need to rise 35-80 percent from current levels to bump credit charges up
to levels seen during the offshore and marine crisis and the Global Financial Crisis,” the brokerage said. “Against a backdrop where none of their operating markets appears heading for a recession, such a scenario is unlikely, in our view.”

Maybank KimEng tipped its preferred sector picks as UOB, with a target price of S$28.97, and DBS, with a target price of S$29.46; it rates both at Buy. It rates OCBC at Hold with a S$11.07 target price.

Shares of DBS ended Monday down 0.56 percent at S$24.67, while UOB rose 0.48 percent to S$25.11 and OCBC gained 0.19 percent to S$10.80.

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