SG Banks: Macquarie has sector report. Note that Operating Return Analysis (OROA) under pressure from margins, while provisioning is a wild card. UOB and OCBC have delivered higher annual OROA at 1.44%, while DBS has lagged at 1.24% on average in 2005-2010. House forecast 1.37% OROA on average for 2011–13, with profitability of all 3 banks to recover to historical average levels only in that timeframe.
Believe that banks with highest consistent returns and best improvement in returns should command higher multiples and see better price performance. House O/w on SG banks among developed market banks in Asia, and recommend a switch out of HK banks (U/w). UOB is top pick on valuation and defensiveness. O/w on OCBC, which has lagged the sector. Retain Neutral on DBS pending visibility on Fed rate hikes.
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