SINGAPORE (June 17): Singapore banks have accelerated their share buyback programmes after being de-rated 12% since their peak in April due.
The de-rating was due to profit-taking, slowing Singapore economic growth and escalating US-China trade tensions.
“We believe this is an indicator of emerging value,” says analyst Thilan Wickramasinghe in a Friday report.
Following its recent correction, the sector is trading at a 17% FY19E P/E discount to its Asean banking peers. Yet, the banks are offering 149bp higher dividend yields.
“Buy UOB and DBS,” says Wickramasinghe.
Year to date, DBS has bought back 25% of the volume it bought in 2018. This was mostly done in May when its share price fell 14%. OCBC also bought back 60% of the volume it bought in 2018 and also much earlier.
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More importantly, Maybank says even if growth massively surprises on the downside, the sector has the balance-sheet strength to respond.
Based on the research house’s sensitivity analysis, Maybank estimates that Non-Performing Loans (NPL) would need to rise 35-80% to reach the credit charges seen during the Offshore & Marine crisis in 2017 and Global Financial Crisis in 2009.
“This is a scenario that is unlikely, in our view, as all their markets are forecast to have GDP growth in 2019-20E,” says Wickramasinghe.
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Moreover, even if they fully write down incremental NPLs, CET1 ratios should remain 380-470bps above regulatory minimums.
“We believes the sector will benefit from a flight to quality and defensiveness as macro conditions remain volatile,” adds the analyst.
Maybank’s has target prices of $28.97 and $29.46 for UOB and DBS respectively.
As at 12.47am, shares in UOB are up 32 cents at $25.31 while shares of DBS are down 2 cents at $24.79.
