SINGAPORE (Sept 26): Maybank Kim Eng Research forecasts that the Singapore banks will deliver a dividend yield of 5.2% for FY2020E – among the highest in the region.
This comes despite gross non-performing loans (NPLs) estimated to rise by 30 basis points to 1.71% by FY2021E.
“With 93% provisioning coverage and strong core-Tier 1, the sector offers good 2020E dividend visibility,” says analyst Thilan Wickramasinghe in a Sept 24 report, noting that the Singapore banks have been actively lowering risk in their business mix.
Increasingly, more focus has been placed on retail and wealth management, even as the banks move towards limiting their wholesale exposure to large corporates and larger SMEs, he says.
Wickramasinghe believes this move towards premium clients might help lower NPL risks.
“While this may not make them immune to asset quality risks heading in to a downturn, it should provide some cushioning together with the ability to better manage these risks,” Wickramasinghe says.
“With good execution, wealth management consumes less capital, can generate higher fees and can potentially deliver higher ROEs compared to traditional asset-led businesses,” he adds.
Wickramasinghe’s top pick in the Singapore banks sector is United Overseas Bank (UOB), on the back of its “strong track record of managing asset quality together with exposure to high quality SMEs and wealth management”.
Maybank has a “buy” call on UOB with a target price of $29.13, representing an upside of around 14%.
As at 3.22pm on Thursday, shares in UOB are trading down 18 cents at $25.38. This implies an estimated price-to-earnings (PE) ratio of 9.6 times and a dividend yield of 5.2% for FY2020E.
Meanwhile, the brokerage has “hold” recommendations on DBS and OCBC, with target prices of $28.05 and $11.05, respectively.
