DBS Group, OCBC, United Overseas Bank

🏦 DBS Group (DBS SP) – Cautious Outlook Amid Limited Upside

Recommendation: HOLD
Target Price: S$37.30
Stop Loss: Not specified
Date of Recommendation: 2nd September 2024
Broker: CGS-CIMB Securities

Investment Thesis: DBS Group faces a cautious outlook with limited upside potential. Despite its solid financial position and strong market presence, the bank is contending with asset quality risks related to its exposure in Mainland China, particularly within the property sector. However, these risks are somewhat mitigated as most of DBS’s loans are extended to state-owned enterprises (SOEs).

• Asset Quality Concerns: DBS’s onshore Mainland China property exposure constitutes less than 1% of its group loans, with asset quality risks remaining contained. The bank has S$2 billion in management overlays as of 2Q24, which provides a buffer against potential deterioration in asset quality.

Valuation and Financials:
DBS is trading close to its target price of S$37.30, with a price-to-earnings (P/E) ratio of 9.46x for FY24F. The bank’s dividend yield remains attractive at 6.11%, with expected increases to 7.26% by FY26F.

Share Price Catalysts:

• Stabilization of asset quality, particularly within its Mainland China exposure.
• Potential for stronger treasury income and wealth management fees as U.S. Fed fund rates stabilize.

🏦 OCBC (OCBC SP) – Strong Capital Position Supports Growth

Recommendation: ADD
Target Price: S$16.70
Stop Loss: Not specified
Date of Recommendation: 2nd September 2024
Broker: CGS-CIMB Securities

Investment Thesis: OCBC’s robust Common Equity Tier 1 (CET-1) ratio of approximately 16% as of 2Q24 gives the bank a strong capital position, allowing flexibility for mergers and acquisitions (M&A) or cushioning against asset quality deterioration. This capital strength, combined with its focus on maintaining a disciplined approach to growth, underpins the recommendation to add OCBC to portfolios.

• Capital Strength: OCBC’s strong CET-1 ratio provides a significant cushion against potential financial headwinds, allowing the bank to pursue growth opportunities through M&A or other strategic investments.

Valuation and Financials:
OCBC is valued at a P/E ratio of 8.69x for FY24F, with a dividend yield of 5.84%. The bank’s valuation appears attractive given its strong capital position and growth prospects.

Share Price Catalysts:

• Potential M&A activities leveraging its strong capital position.
• Resilience in earnings supported by a disciplined approach to loan growth and risk management.

🏦 United Overseas Bank (UOB SP) – Stable Growth with Earnings Synergies

Recommendation: ADD
Target Price: S$34.50
Stop Loss: Not specified
Date of Recommendation: 2nd September 2024
Broker: CGS-CIMB Securities

Investment Thesis: United Overseas Bank (UOB) is poised to benefit from earnings synergies following its recent acquisition of Citibank’s retail business in Southeast Asia. The integration of this acquisition is expected to drive incremental earnings growth, supported by UOB’s stable asset quality and prudent risk management.

• Earnings Synergies: The acquisition of Citibank’s retail operations is expected to contribute positively to UOB’s earnings, with synergies materializing over the next few quarters. UOB’s solid balance sheet and stable asset quality further support its growth outlook.

Valuation and Financials:
UOB’s valuation is compelling, with a P/E ratio of 8.37x for FY24F and a dividend yield of 5.89%. The bank’s ability to generate stable earnings and integrate new acquisitions effectively makes it a strong candidate for long-term growth.

Share Price Catalysts:

• Successful integration of Citibank’s retail business.
• Continued stable asset quality and prudent risk management practices.

  Thank you