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Singapore Banking Monthly – Bracing for some headwinds

• Federal Reserve held rates steady in the range of 1.5% – 1.75%. NIM for Singapore banks expected facing compression, especially with 3-month SIBOR down 11 bps YoY to 1.78% end Dec19.
• Singapore domestic loans grew at a stable pace of 3.1% in December 2019.
• Application for Digital Banking license closed on 31 Dec 2019. Based on MAS’ timeline, Digital Banks will likely begin operations only in 2021.
• Maintain Singapore Banking Sector at Overweight. Strong efforts in capital management will manage downside risks and provide sustainable dividend yields of near 5.0%.

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Singapore Banks

4Q19: What to expect

Weaker loans, NIMs, but potentially higher dividends

DBS will be reporting 4Q19 results on 13 Feb, followed by OCBC & UOB on 21 Feb. We are expecting a moderating quarter driven by slowing loan growth and weaker NIMs as falling interest rates get reflected in asset yields. Fee income should also see seasonal weakness, but trading income potentially may surprise on the upside given falling rates. Asset quality should be the key point of focus, given volatility in North Asia and slow domestic growth. Credit charge guidance on the backdrop of the rapidly spreading Wuhan epidemic and any stress-test outcomes will be of major interest. Nevertheless, strong positive momentum in FY19 and robust capital levels should open potential for higher dividends, particularly for DBS and OCBC, in our view.

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REIT Coronavirus - SG bans Chinese arrivals

■ Industry RevPAR could fall into negative territory in 2020 following the ban on Chinese arrivals in Singapore and the deteriorating coronavirus situation.

■ REITs see immaterial impact so far. Any weakness could be offset by distributions from divestment gains.

■ Expect share price weakness. Hospitality is the least preferred subsector.

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ComfortDelGro (CD SP)

Near-Term Concerns Remain; Stay NEUTRAL

 Maintain NEUTRAL, DCF-derived SGD2.38 TP, 12% upside. ComfortDelGro’s share price has depreciated 11% this year amidst concerns of the negative impact on its taxi and public transport businesses from the outbreak of the Wuhan coronavirus, which has spread beyond China to other countries where CD has a business presence. CD’s strong FCF generation, its relatively healthy FY20F yield of c.4.6%, and P/E being in line with the 5-year average seems exciting – but we remain cautious on near-term earnings growth headwinds.

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