Singapore Banks

CitiGroup Report

Extracts fm Report by CitiGroup dated 20-Jul,

Easing House Financing Rules - Hype Ruling Fundamentals

Summary

• Banks up 3%-6% : Banks rallied on new home financing rules to boost affordability
  for first time buyers/upgraders, improving lower-end property market liquidity.
  Sentiment may rule fundamental reality for now; but we see as a profit-taking
  opportunity
• Key changes :
  (a) Mortgage loan-to-value ratio (LTV) can go up to 90% (from 80%), but MAS will impose a 100% CAR risk weight (usually 50%).
  (b) cash downpayment down to 5% (from 10%); remainder from CPF.
  (c) CPF can be used to buy private property of remaining leases of 30-60 years (from >60 years)
• Impact and concerns : Main benefit on lower-end private (especially leasehold) property. Doubling capital charge for loans LTVs>80% hits ROEs. Although banks may permit higher LTVs, they may raise loan rates to compensate
• OCBC top pick : OCBC has the highest estimated Singapore mortgage exposure as
  a proportion of total mortgages and loans, followed by DBS, then UOB. OCBC’s mortgage strategy also targeted the lower (mass market) property segment including public housing (HDB) properties.

Valuation

• DBS - Target price for DBS is S$15.75
• OCBC - Target price is S$13.35
• UOB - Target price for UOB is S$15.00

GKGoh Report

Extracts fm GKGoh Property Report dated 20-Jul,

All banks are potential beneficiaries. The share prices of DBS (DBS SP, S$15.40, Buy) and OCBC (OCBC SP, S$12.50, Buy) rose 4.8% and 5.0% respectively in a knee-jerk reaction to the announcement. This reflects investors’ belief that DBS could continue to gain market share and OCBC could be a potential beneficiary, being the market leader in HDB loans (65% market share). In contrast, UOB’s (UOB SP, S$14.80, Hold) share price only rose 2.8%, due to its less aggressive stance on loan growth. While the market’s initial reaction is understandable, we believe that the logic is incorrect. Mortgagers are generally price-sensitive and loan market share is largely a function of mortgage pricing. We hold the view that more housing loans do not automatically translate into higher profitability.

Also, impact of housing loans will only show up two years later. Should the new rules trigger a spurt of property purchases, the impact of these home loans will only show up two years later, when the loans are disbursed.

DBS and OCBC remain fundamental Buys, though share prices have over-reacted. We are not changing our forecasts or target prices. With the latest run-up, upside to our target prices has narrowed to 3-9%. Investors could take the opportunity to take profit in the short term.

Target Price

• DBS - S$16.75
• OCBC - S$13.05
• UOB - S$15.30

My Comments - Today's close, DBS $15.90, OCBC $12.50 and UOB $14.80. DBS and UOB has reached CitiGroup's target price whereas all banks still have upside potential based on GKGoh's target.

Disclaimer : Above Materials are Meant to be used for Reference ONLY. It does not represent a recommendation from any of us