GOLDMAN SACHS has upped its 2010E/2011E core earnings for Singapore banks by 4% to 16%.
The broker has upgraded its forecast of regional economic growth, and now expects swifter, stronger loan volume recovery, resilient bank margins, and increased fee income.
UOB is Goldman Sachs’ top bank pick
Its top sector pick is UOB, which it considers to be best positioned for strong earnings recovery (improved asset quality trend), and it will be able to maintain the best Return On Equity.
It upgraded its call on UOB to ‘Buy’ (from Neutral) and raised its 12-month target price to S$23.50, which translates into 2 times its estimated 2010 book value.
UOB will gain from its exposure to the following, says the broker:
1) a recovery in the SME segment (which accounts for 25% of loan book),
2) growing residential mortgages (26%), and
3) dominance in retail consumer-driven fee income (17% of fee income).
Key downside risks include a double-dip recession, limited asset quality improvements, and weaker bank margins.
OCBC: Buy for non-interest income upside, wealth management
Goldman Sachs reiterated its ‘Buy’ call on OCBC, and raised its 12-month target price to S$10.40 (from S$9.40).
”Other than OCBC’s robust core lending franchise, we are excited about OCBC’s non-interest income growth prospects, mainly in wealth management (including insurance).”
OCBC announced its acquisition of ING Asia Private Bank in October 2009, and the M&A is currently pending completion.
”OCBC has also demonstrated its ability to better manage risk and maintain pretty resilient asset quality during the global economic downturn,” says the broker.
It contained its non-performing loans well throughout the downturn, and currently has the lowest NPL ratio in the sector.
Key downside risks include a double-dip recession, a slower-than-expected recovery in loan volumes, and poor integration of its private bank acquisition.
UOB Kayhian: Expect more en bloc sales in 2010
UOB Kayhian is overweight on Singapore’s property sector, and its top picks are City Developments, Ho Bee, Wing Tai and Wheelock, which it estimates to be trading at an average of 24% upside.
UOBKH analyst Vikrant Pandey believes there will be more en bloc sales in 2010, after last year’s lull when the only en bloc was the sale of Dragon Mansion at Spottiswoode Park to Roxy-Pacific.
En bloc sales would make a come back on the back of:
a) rapidly falling inventory levels among developers,
b) 1H10 government land sales programme that mainly targets the mass-market segment,
c) recent surge in high-end transactions,
d) moderation in price expectations by collective sale homeowners, and
e) transformation of Singapore into a top global city with the opening of two integrated resorts.
The analyst forecasts private residential prices would rise by10% to 15% in 2010.Property stock Market Cap
(S$m)Fri Close Target
PriceUpside CITY DEVELOPMENT 10,602.5 S$11.66 S$14.15 21.4% HO BEE INVESTMENt 1,400.9 S$1.90 S$2.25 18.4% WHEELOCK PROPERTY 2,536.7 S$2.12 S$2.80 32.1% WING TAI HLDGS 1,642.8 S$2.07 S$2.55 23.2% Average 23.8%
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