SINGAPORE (Jan 5): DBS Group Research says expectations for the 4Q17 results season are high after Singapore’s 4Q GDP flash estimates rose at a seasonally adjusted annualised rate of 2.8% q-o-q to beat consensus estimates.
Over the past one week, Singapore’s three-month SIBOR jumped 25bps to 1.501% while the 12-month SIBOR jumped 29bps to 1.73%. DBS's interest rates strategist sees 3M SIBOR rising further to 2.15% by end 2018.
Sensitivity analysis by DBS indicates that the latest SIBOR rise, if sustained, will lift the NIM earnings for UOB and OCBC by 1% and 2% respectively.
"We expect the re-rating on Singapore banks to continue on the back of accelerating loan growth, upside potential to NIM and lower provisions. We raised OCBC target price to $14.00 and UOB’s target price to $29.50," says analyst Yeo Kee Yan in a Friday report.
The US congress recently gave the final approval for sweeping tax reforms that included a corporate tax cut to 21% from 35%. As Singapore does not have a tax treaty with the US, the tax cut benefits Singapore companies with operations in the US.
"For stocks under our coverage, ST Engineering, Cityneon and Venture Corp are beneficiaries," adds Yeo.
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Yeo also sees interest uptick for the services sector stocks. The latest 4Q GDP flash estimates reinforced DBS's view that the recovery in Singapore’s economy is broadening to the services sector.
Among the three key sectors, services is the only one that registered positive growth on a y-o-y (+3%) and q-o-q (+7.5%) basis.
OCBC picks are Genting, mm2 Asia, Cityneon, OCBC and UOB.
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Better loan growth traction and NIM uplift to drive UOB topline
"We peg near-term support at 3,420. Our base-case STI year-end objective is 3,688, pegged to 13.89x FY19 earnings with a ‘bull-case’ objective of 3,800 pegged to 14.3x FY19 earnings."
Shares in ST Engineering, Venture Corp, Genting Singapore, mm2 Asia, Cityneon, OCBC and UOB are trading at $3.32, $21.65, $1.33, 54 cents, 97 cents and $26.93 respectively.
