SG Banks: RBS has sector report. Note of impact of a slowdown in SG GDP growth on bank earnings and valuations. House see 26% potential downside to estimates and 25% downside to base-case fair values. Banks’ earnings are expected to be highly sensitive to changes in GDP and forecast provision charges of 24bp of avg earning assets for FY12F.
Balance sheets remain strong to withstand a material deterioration in global macroeconomic conditions, well capitalized with a tier-1 ratio of 14.4% and an asset to equity leverage ratio of 10.5x. Valuations impacted by earnings momentum, expect strongly negative earnings momentum for the sector, and sector fair values could decline by 25% vs positive base-case scenario.
Current view vs bear case: Buy for all banks, DBS (TP $18.00 vs 13.00); OCBC ($12.00 vs 9.00); UOB (TP $23.00 vs 18.00)
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