SG Banks

SG Banks: Maybank-KE upgrades sector to OverWeight: DBS remains the popular pick Maybank-KE upgrades the Singapore banking sector to Overweight, with DBS as the house top pick. With short-term interest rates expected to bounce up as early by 2015, this could spark a new re-rating wave as early as 2H14, after several years of depression in net interest margins. The house projects 3M SIBOR to rise to 1.0% by end-2015 and to 2.0% by end-2016 (currently 0.4%) and conclude that overall industry asset quality should remain resilient due to: 1) the majority of the loan growth came from traditionally safer housing loans and short-term US$ trade loans; 2) strong household balance sheet; 3) decent corporate balance sheet; and 4) a growing economy DBS (Buy: TP $19.70) ranks highly given its position to benefit the most from higher interest rates given its strong deposit franchise and liquid balance sheet, while the on-going transformation at DBS should support a higher medium-term ROE profile. Also upgrade UOB (Buy: TP $23.40) on its resilient Asean market exposure which allows it to capture Asian consumer affluence, cheap P/E valuation, and management’s discipline in M&A’s suggests low risk of overpaying for Wing Hang;. OCBC (Hold: TP $11.30) is the house least preferred bank, for its volatile earnings profile, and risk of overpaying for Wing Hang. Separately, we note that two foreign brokers had similarly reiterated their Buy calls on DBS this morning, citing the bank as its top pick Singapore banking pick, on grounds of the group’s ability to leverage off its stronger foothold in the private banking industry, its strong NIM outperformance and limited risky Asean exposure.