SG Banks

SG Banks: Mizuho Securities initiates Coverage on SG banks. Note that based on a 20 yr volatility analysis of 5 Asian banking sectors, find that the reputation of Singapore bank stocks as a safe haven for investors to hold, but only during periods of extreme economic crisis in Asia. Given the dismal economic outlook for 2013, it is probably once again time to consider SG bank stocks. Note that: The 3 banks stack up well against banks globally in terms of financial strength and reputation and div yields are good at around 3.5% currently. Add that SG bank stocks have a large enough market cap and trading volume to justify maintaining a position, while investors have not lost a fortune on these names in the past year, unlike the case for the North Asia mega-banks. All three SG banks are financially pristine, but at this juncture prefer OCBC. Ratings as follow: 1) DBS: Initiate at Underperform with $15.30 TP. DBS’ proposed takeover of Indonesia’s Bank Danamon should prove transformational, boosting revenues from SEA to 27% from 7% currently. The deal is unlikely to be completed until late 2013. Given the cost and challenges of a major operational merger, this looks more like a share overhang than a share price catalyst at this point. Trading call: Consider shorting DBS at present as the stock has run up 26% from the low last Dec. 2) OCBC: Initiate at Buy with $10.94 TP. OCBC’s 2010 purchase of ING’s Asian private bank was a gutsy move to become a player in wealth management, the financial services business of the future in Asia. WM contributes 26% of group revenues, with more to come. While OCBC is ready to reap the rewards of a major investment, DBS has the tough job of completing a major deal and integrating operations ahead. UOB, true to its conservative approach, has no transformational acquisitions on the agenda. 3) UOB: Initiate at Underperform with $19.93 TP. UOB continues to be cautious in expanding outside its traditional business lines and home mkt, even though this is essential to achieve superior long-term growth. This less aggressive policy is unlikely to change in the next couple of years.